Wednesday 22 September 2021 2:58 pm

Exclusive: HMRC disbands 'secret' unit that probed family investment companies

A dedicated unit within HMRC that focused on family investment companies has been disbanded, City A.M. understands.

A source within HMRC confirmed this afternoon that the ‘secret’ specialist HMRC unit, which was set up in 2019 to investigate risks associated with family investment companies and tax avoidance risks, has been wound up.

The primary reason for disbanding the team of three people is because HMRC found no evidence of a correlation between so-called family investment companies (FICs) and illegal activities or non-compliant acts.

“In the research we undertook there was no evidence to suggest that there was a correlation between those who establish a FIC structure and non-compliant behaviours,” HMRC representatives told the Wealthy External Stakeholders Forum last month.

The HMRC source explained “this was much ado about nothing.”

Tax avoidance

“The review was prompted by an increase in FICs being created and concerns over whether they are linked to tax avoidance,” explained Ben Taylor, an associate solicitor at law firm Roythornes Solicitors.

“For those of us advising on the role of a FIC in estate and tax planning, it wasn’t surprising [the unit is disbaned],” Taylor told City A.M.

In practice, FICs are often considered as an alternative to trusts.

“The compliance for trusts has also increased in recent years following money laundering directives. Trustees need to maintain certain information about the trust, such as decisions and discussions during meetings.”

“There will also likely be annual returns, and possible returns on exits from the trust and on ten-year anniversaries. By comparison, FICs do not require much more to maintain,” he explained.

“A FIC is a long-term vehicle for achieving growth and passing on family wealth but change to regulations and taxation is always possible, so they must not be viewed as entirely risk free,” Taylor concluded.