Tax team to investigate family investment companies

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HM Revenue & Customs (HMRC) has created a new team whose job it will be to look into the use of family investment companies, according to the International Adviser.

The article states the ‘secret’ unit was set up in April of last year (2019), and its existence only came to light after the law firm Pinsent Masons submitted a freedom of information request. Its remit is to investigate if rich families are using family investment companies to avoid paying inheritance tax.

Unlike trusts, funds in a family investment company are not subjected to inheritance tax. The tax is applied to 19 percent of profits made by the company or when the capital is released.

Estate planning

A family investment company is a private limited company set up for estate planning purposes. The shareholders are the family members. They have different levels of control over the company, the rights to receive dividends and entitlements to its capital value.

Parents are able to transfer value and responsibility to their children while keeping the oversight and control of the company. It is seen as a flexible way for parents to establish a structure to manage the investment of family wealth, and the eventual transfer of it to their heirs in a controlled way. Family investment companies are not subject to income tax.

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Speaking to the International Adviser, Steven Porter, a partner at Pinsent Masons, said the move marked a “new frontier” in HMRC’s crackdown on ultra-high-net worth individuals (people defined as having a net worth of at least $30/£23.2 million) and their families.

He said that by setting up the new unit, HMRC had made a “clear statement of intent”, setting out an intention to ensure the UK’s tax authority was able to maximise revenues from the UK’s richest families.

Costly tax investigations

While family investment companies made sense for many people, it was clear the HMRC was on the look-out, he added. Families needed to ensure their affairs were in order as tax investigations could end up very costly for those they involved.

Natalie Sherborn, another Pinsent Masons partner, commented that it remained to be seen if it would lead to criminal sanctions in an effort to send out a strong deterrent message.

 

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