HMRC’s new team, known as the Family Investment Companies Unit, is tasked with conducting risk reviews of private companies used by family offices and high net worth individuals to manage their wealth.
Family investment companies (FICs) are often used by hedge fund managers, business owners and recipients of large inheritances. FICs are popular amongst ultra-high net worths and families because they allow for greater control over assets and investment strategy than by outsourcing the role to private banks and investment managers. FICs can also help families pass on assets and facilitate succession planning.
The tax affairs of ultra-high net worths and families has caught more of the attention of HMRC in recent years as they continue to grow in number. The core function of this new team will be to assess whether FICs used by high net worths and families are operating in line with UK tax laws.
The number of UK family offices, which are amongst the most frequent users of FICs, has more than doubled in number to 1,000 since 2008, and now manage more than $1tn (£700bn) in assets (according to 2016 figures from the Family Office Council). The UK is also now home to a large proportion of the world’s ultra-high net worths (1,528 individuals in 2019, according to Credit Suisse).
HMRC may also be concerned over how FICs could act as a gateway for ultra-high net worths to move assets offshore in the long term. For example, FICs could be used to transfer assets to another company incorporated in a lower tax jurisdiction overseas.
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.
Changes to tax rules surrounding trusts have also made them a less attractive vehicle for holding and managing assets compared to FICs. In 2006, the government imposed a 20% 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. Taxes are only levied on the profits the company makes at the standard rate of 19% or when capital is released.
Using FICs makes sense in many cases. However, HMRC is clearly on the lookout and families need to ensure their affairs are in order.
HMRC’s new team, known as the Family Investment Companies Unit, is tasked with conducting risk reviews of private companies used by family offices and high net worth individuals to manage their wealth.
Family investment companies (FICs) are often used by hedge fund managers, business owners and recipients of large inheritances. FICs are popular amongst ultra-high net worths and families because they allow for greater control over assets and investment strategy than by outsourcing the role to private banks and investment managers. FICs can also help families pass on assets and facilitate succession planning.
The tax affairs of ultra-high net worths and families has caught more of the attention of HMRC in recent years as they continue to grow in number. The core function of this new team will be to assess whether FICs used by high net worths and families are operating in line with UK tax laws.
The number of UK family offices, which are amongst the most frequent users of FICs, has more than doubled in number to 1,000 since 2008, and now manage more than $1tn (£700bn) in assets (according to 2016 figures from the Family Office Council). The UK is also now home to a large proportion of the world’s ultra-high net worths (1,528 individuals in 2019, according to Credit Suisse).
HMRC may also be concerned over how FICs could act as a gateway for ultra-high net worths to move assets offshore in the long term. For example, FICs could be used to transfer assets to another company incorporated in a lower tax jurisdiction overseas.
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.
Changes to tax rules surrounding trusts have also made them a less attractive vehicle for holding and managing assets compared to FICs. In 2006, the government imposed a 20% 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. Taxes are only levied on the profits the company makes at the standard rate of 19% or when capital is released.
Using FICs makes sense in many cases. However, HMRC is clearly on the lookout and families need to ensure their affairs are in order.
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