HMRC has implemented a secret unit to investigate the use of family investment companies (FIC) by the wealthy to avoid paying inheritance tax.
The secretive unit was set up last April as concerns grew over how the rich exploit loopholes to reduce bills. It puts family offices with a combined total of more than $1trn in assets within its sights.
In an FIC, members of a family own shares, with parents or grandparents typically exercising control by holding shares with voting rights. Giving shares to children can help to reduce inheritance tax liability.
Family investment companies have slipped under the radar. That looks to be changing"
The existence of the unit, which had not previously been disclosed, was revealed in a freedom information request filed by Pinsent Mason, and reported by the FT.
Pinsent Mason partner and head of tax Jason Collins told the paper: "HMRC is following the money. It will be concerned that family investment companies are taxed too leniently and that huge amounts of wealth might be held through them.
"Family investment companies have slipped under the radar. That looks to be changing and we may see new anti-avoidance rules created for them."
While the unit was founded before Boris Johnson became prime minister, its mission may have added urgency as the government seeks to fund an ambitious spending programme without lifting taxes.
HMRC told the FT: "The Family Investment Company team was established . . . in April 2019 to look at FICs and do a quantitative and qualitative review into any tax risks associated with them with a focus on inheritance tax implications.
"The team's work is exploratory at this stage and as such, we would not like to share any more details."
FICs are often used to own assets such as bonds and property, while tax benefits include relief for mortgage interest. Dividends are taxed at corporation tax rates, rather than as income tax.
Funds invested via family invested companies are able to calculate tax liabilities at the corporate tax rate of 20%, well below the top personal rate. Children who are shareholders alongside their parent may in some cases be able to reduce their inheritance tax bill.
The new investigations unit is a part of the HMRC's Wealthy and Mid-sized Compliance Directorate.