Families are being advised to get their financial affairs in order and brace for an increase in tax bills following the revelation the UK's tax authority set up a secret unit to probe family investment companies, specifically their use by the wealthy to avoid inheritance tax.
Over the last five years (Family Investment Companies) FICs had grown in popularity and became far more widely used, David Webster, partner at law firm Russell-Cooke and member of the firm's family office team, said. Given the estimated value of assets held by those companies, it was natural HMRC would want to look into them.
"However, a FIC is not a magic bullet which will offer protection from inheritance tax and other tax charges," Webster said.
"It needs to be used carefully - for example, a newly incorporated FIC will generally need to be funded with cash rather than the transfer of assets. It also - as with a discretionary trust - introduces an additional taxable person into wealth planning considerations. A FIC may pay corporation tax on its own profits at lower rates than personal income tax, but recipients of any payments out of the FIC will still be liable to personal tax when money is extracted."
Increases in tax burden predicted as UK tax man targets family offices is available to read on the Campden FB website.
David is a partner in the corporate and commercial team and advises clients across a range of sectors, including real estate, financial services, professional services and family businesses.