News has recently broken that since April 2019 HMRC have had a secret unit which focuses solely on investigating Family Investment Companies (FICs).
FICs have been a popular investment vehicle in recent years as they allow investors to take advantage of the significantly lower rates of tax paid by companies than by individuals receiving the same investment income in their own names. Commonly, families or individuals will set up a UK limited company, contribute or loan in cash funds and have the company invest in a wide range of assets. Income, which may be taxed at rates of up to 45% in the hands of an individual will be taxed at 19% under current corporation tax rates. Furthermore, most dividends received will not be subject to corporation tax at all. The immediate advantages are clear to see when the company is to be used as a long term investment roll-up vehicle.
Some families also choose to take the planning a step further and use the transfer of shares or “hurdle” shares (whereby certain shares are worth nothing until a future criterion is met), to transfer the value f the investments in the company to younger generations in an inheritance tax efficient manner. It is understood that HMRC are looking particularly closely at any inheritance tax planning involving FICs.
Whilst the law on this planning is sound, we have long been aware that HMRC know that FICs becoming increasingly popular and that significant tax savings can be made. Accordingly, we anticipate that HMRC’s new secret unit will be carefully considering whether the law is being correctly implemented, with tax liabilities being correctly calculated and reported.
Clients with FICs would be recommended to seek advice and a review of their company’s tax position and ensure that the advice on set-up has been correctly and robustly implemented. Those who have used, or plan to use the company to transfer wealth to younger generations may also want to consider a review of the inheritance tax planning to ensure it is deemed to be “acceptable” planning under current rules and standards.
If you have any queries or concerns about a FIC you already have in place or would like further information on FICs please contact us.