HMRC concludes research on Family Investment Companies

HMRC have released notes from their Wealthy External Forum conference call which covered the conclusions to their research into the use of Family Investment Companies. The research was undertaken with a view to better supporting taxpayers understand and comply with their tax obligations.

HMRC’s team reached the following conclusions:

• The aim of a Family Investment Company (FIC) was to pass wealth to future generations in a tax-efficient way.
• While there was no statutory definition, the characteristics that FICs tended to share included:
  • Shareholders were members of the same family, usually covering at least two generations.
  • Shareholdings were held directly, or via a trust.
  • There were multiple share classes.
  • Rights attached to the shares differed depending on the age or generation of the shareholder. Older generations tend to retain voting rights whereas younger generations held shares with rights to income or capital on a winding up.
  • The company do not necessarily trade, but hold investments, often in the form of stocks and shares or land and buildings.
• In the sample of FICs reviewed by HMRC the average assets amounted to around £5m
• FICs were used by wealthy people, those that had annual income exceeding £200,000 or those with a wealth of more than £2m.
• The age of individuals setting up an FIC tended to be over 50.
• There was no evidence to suggest a correlation between those establishing an FIC and non-compliant behaviours.
• HMRC viewed the tax risks as the mitigation of Inheritance Tax.
• The compliance risk crossed a variety of taxes including Inheritance Tax, Capital Gains Tax, Stamp Duty Land Tax and Corporation Tax.

Useful guides on this topic

Family Investment Companies
What is a Family Investment Company?  Why use a Family Investment Company?  What is the tax treatment of a Family Investment Company?

CPD: Family Investment Companies