Inheritance Tax  

What next for family investment companies?

Where extra protection is needed for the next generation, or the FIC is designed to support a wider pool of beneficiaries, a hybrid FIC/trust structure is recommended.  

Despite the clear financial and practical benefits that FICs can bring when helping families to pass wealth to the next generation tax efficiently, the scrutiny they have faced over the past two years has discouraged some from adopting them as part of their planning strategies.

It must now be hoped that HMRC’s decision to draw a line under its investigation will improve confidence and encourage more families to consider it going forward.

More aggressive routes to IHT planning

The approach taken by HMRC in undertaking the review in the first place does beg the question ‘what was all the fuss about?’. As with most planning, there are more aggressive routes that one could take.

However, HMRC’s decision to disband its special investigation unit is a positive sign that the majority of those involved in creating FICs are doing so in the right way and in line with the intentions of tax law in this area.

To some extent, it seems that FICs may have been targeted unnecessarily, particularly as they are commonly used by families with average assets of £5m, rather than the extremely wealthy, who are more likely to establish a family office.

Despite giving them a clean bill of health as a legitimate tax planning tool, the fact that HMRC has stopped short of saying that FICs are no longer an area of interest means new legislation in this area cannot be ruled out.

Wealthy families seeking to adopt FICs as part of their planning strategy will have to weigh up the benefits they bring against the risk that changes could yet materialise at some point in the future.

With the capital gains tax rate expected to rise in the future to help cover the costs of the financial support provided during the pandemic, now may be the right time to establish a FIC structure and lock in the current low rate of CGT, while it remains an option.

Craig Hughes is a private client tax partner at accountancy firm Menzies LLP