A special HMRC team set up to review the use of family investment companies was a complete waste of time and diverted resources from the investigation of aggressive tax avoidance and evasion, say leading tax and advisory experts. The view from commentators is that HMRC have now shut down this unit after it distracted valuable technical resource for more than two years from an area which didn’t merit such attention in the first place. HMRC set up the unit because they were concerned by the increasing use of FICs for tax avoidance purposes, and a specialist, and apparently secret, unit was set up in April 2019 to review their purpose and operation. There was a concern that HMRC would force a legislative change to the tax rules for investment companies, which could have had a broad impact and damaged the UK corporate regime for international investment. Companies have become popular vehicles for holding investments, such as property, shares and bonds. The lower rate of corporation tax, currently 19%, and the ability to transfer shares in the company between family members provided a flexible environment, when compared to a traditional family trust. It would seem HMRC have reached the conclusion that any perceived tax avoidance was questionable in the first place. The company pays corporation tax on its profits, and in fact, the corporate tax rate is increasing by 6% to 25% from 1 April 2023. The timing of the conclusion of HMRC’s review may be predicated by the corporate tax increase in 18 months. The good news is that the investment company rules remain as they are, which is important for the UK’s corporate competitiveness in the international market, especially in the context of Brexit. The review is closed, and companies will now be looked at by HMRC as ‘business as usual’.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of August 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.