A family investment company (“FIC”) is a private limited company that is set up for the purposes of holding investments for the family with a view to increasing and protecting family wealth and passing it on to future generations.
The process
A new private limited company is incorporated with the initial shareholders usually being the parents. Once the FIC is incorporated, wealth can be transferred by the parents into the FIC’s ownership. This may be surplus cash or real estate property or any other form of investment. The investments can then be managed by the directors or by investment advisors appointed by the FIC in order to generate an income and/or maximise capital growth. Any increase in value of the assets will be contained within the FIC which may be beneficial for inheritance tax purposes.
Different shares
Different rights can be assigned to shares held by different family members and voting rights can be separated from the right to income and capital growth. Certain family members may need income from the FIC whilst others may desire capital growth. Control of the FIC can be held by a small number of individuals (usually the parents) whilst the wider family can receive monetary benefits from the FIC.
It is also possible to structure the FIC to prevent shares from passing outside the family bloodline
Tax considerations
Advice should always be sought on the tax implications involved on the transfer, acquisition and disposal of assets within the FIC. Broadly speaking:
- The FIC will be subject to corporation tax annually, which currently is at the rate of 25%. This is often seen as more desirable than the higher income tax rates individuals may be subject to on personal investments, and therefore potentially higher post-tax profits are available for re-investment.
- Individual family members will be subject to income tax at their own rates on any dividends or salaries taken from the FIC.
- There will be no inheritance tax charge arising on a gift of shares to family members provided that the donor survives 7 years (unlike the 20% IHT charges that arise on a gift into a Trust the value of which exceeds the available nil rate band, currently £325,000).
- Capital gains tax and/or stamp duty land tax may be payable on the transfer or disposal of assets.
The FIC will also have to comply with the usual filing formalities at Companies House and the procedures set out in its Articles of Association and the Companies Act 2006 for any decision making or changes to the constitution of the FIC.
It is widely considered that a FIC is better suited to families where the value invested is likely to exceed £1 million, bearing in mind the costs of setting it up and running it.
The use and success of a FIC is highly dependent on family circumstances. If you would like our advice on the creation, operation or restructuring of a FIC, please contact any member of our Corporate Department on 01484 821 500 or fill out our online enquiry form to request a call back.
The above article is for illustrative purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any part of the information given.