It was announced last week that HMRC has closed down its dedicated Family Investment Company (‘FIC’) Unit after finding no evidence of any link between the use of FICs and non-compliant behaviour. The FIC Unit was established by HMRC in 2019 to explore the tax avoidance risks associated with FICs, which have become increasingly popular as a wealth and succession planning tool in the last decade. FICs can often be used to meet objectives which are more traditionally associated with trusts, however, they are not subject to the same tax regime as trusts.
HMRC has never specifically stated which taxes they considered were at risk of avoidance, and whilst it was always difficult to see any means by which HMRC could have targeted FICs on a universal scale under current rules, the closing of the dedicated unit will come as a relief to many. That being said, it is notable that HMRC would not be drawn on whether any changes to tax policy are being considered which might make FICs less attractive as a succession vehicle in the future. In the meantime, FICs will continue to be subject to existing tax rules including existing general and targeted anti-avoidance provisions. Anyone considering establishing a FIC should therefore seek specialist tax and legal advice to ensure such planning meets their desired objectives whilst avoiding any unpleasant surprises.