HMRC closes unit to investigate family-owned investment firms

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A special team set up by HM Revenue & Customs to investigate family-owned investment firms, used by the wealthy to pass on assets, has been disbanded after finding no evidence the vehicles were abused.

In April 2019, the tax administration set up an internal unit to study the use of family investment companies (FIC) after a renewed interest in vehicles of wealthy people.

However, in minutes posted on its website, the HMRC said the team would be absorbed into the larger department responsible for tax compliance among the wealthy.

The research found “no evidence” of a correlation between those who have implemented FICs and tax evasion.

“As with any analysis of a taxpayer population, the same broad spectrum of tax compliance behavior was observed, with no evidence to suggest that those using FICs were more prone to avoidance,” the minutes said.

The team’s research concluded that people use CIF as a “planning strategy, often with the primary goal of generational wealth transfer and inheritance tax mitigation,” the minutes say.

Tax experts praised the development. Julia Rosenbloom, tax partner at wealth manager Smith & Williamson, said the HMRC statement “reassures people that family-owned investment firms are OK.”

She added: “The tax authorities obviously kicked the tires [on them] and ultimately found that they are not aggressive vehicles. They plan vehicles. This is great news for customers who have done it or are considering doing it.

Nimesh Shah, managing director of Blick Rothenberg, a tax and consultancy firm, also called the move “good news”. But he criticized HMRC for not engaging enough with tax professionals before launching the review.

“HMRC wasted a tremendous amount of time and money in an area that did not deserve such attention. The review could have been shortened if HMRC had engaged early with stakeholders and then focused on continuing to fight aggressive tax evasion schemes and tax evasion, ”Shah said.

An FIC is a private company that owns and manages investments, and its shareholders are family members. Over the past decade, they have become increasingly popular with wealthier families as a vehicle for holding stocks, bonds, and other assets.

Their popularity is in part due to tax changes introduced in 2006, which resulted in a decline in the number of uses of trusts as traditional wealth planning. Since then, most of the assets transferred to trusts have been subject to immediate 20% inheritance tax and an additional 6% charge every 10 years. Additional fees of up to 6 percent are levied when assets are transferred out of the trust.

In contrast, FICs do not incur an immediate 20 percent inheritance tax when assets are transferred to them. Meanwhile, placing assets in an FIC means that dividend tax, for example, is paid as corporation tax rather than personal income tax, benefiting from higher rates. low.

However, FICs have some drawbacks, tax experts said, including administration and the costs of setting them up. Certain types of FICs must also file public accounts with Companies House, making them less attractive to those who care about privacy.

HMRC said: “HMRC has a duty to investigate trends in tax planning to ensure that the correct tax is paid and that arrangements do not represent or indicate an increased risk of non- compliance.”

“In this case, the research found that there was no evidence to suggest that there was a correlation between those establishing an FIC structure and non-conforming behaviors.

“The research has also led to a better understanding of FICs so that HMRC can better help taxpayers who use FICs understand and comply with their tax obligations.”

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