HM Revenue & Customs  

Warning sounded over tax crackdown on HNWs

Warning sounded over tax crackdown on HNWs

High-net worth individuals and families are at risk of being investigated by HM Revenue and Customs, an international law firm has warned.

Pinsent Masons flagged today (February 24) that the use of Family Investment Companies was under investigation by a small HMRC team known as the FICs Unit.

The unit, which launched in April 2019, has been tasked with researching these private companies used by family offices and HNW individuals to manage their wealth, according to Pinsent Masons.

A FIC is a bespoke vehicle which can be used as an alternative to a family trust. It is a private company whose shareholders are family members.

They are popular among ultra-HNWs because they allow for greater control over assets and investment strategy than outsourcing the role to private banks and investment managers.

Changes to tax rules surrounding trusts have also made FICs a more attractive option by comparison. In 2006 the government imposed a 20 per cent upfront inheritance tax on most assets transferred into a family trust.

Unlike trusts, funds paid into a FIC are not typically subject to upfront inheritance tax. Instead, taxes are only levied on the profits the company makes at the standard rate of 19 per cent or when capital is released.

According to Pinsent Masons, HMRC could be concerned the companies could act as a gateway for HNWs to move assets offshore as well as general tax avoidance.

Steven Porter, partner at Pinsent Masons, said: “The tax affairs of family offices and the use of FICs are the new frontier in HMRC’s crackdown on ultra-high-net worths.

“Setting up this new unit is a clear statement of intent – to ensure that HMRC maximises revenues from the UK’s richest families.”

A spokesperson from HMRC said: “The FIC team was established in April 2019 to look at FICs and do a quantitative and qualitative review into any tax risks associated with them with a focus on inheritance tax implications. 

“The team’s work is exploratory at this stage and as such, we would not like to share any more details.”

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