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Family Investment Companies – what are they? 

07.04.2022

Private Client

What are family investment companiesFamily Investment Companies – what are they? 

We have all heard of Trusts but probably find the concepts of how they work rather complicated – they certainly aren’t the tax-free vehicles that US television would have us believe! The mystery of Trusts has somewhat led to the Family Investment Company (FIC), a structure that aims to replicate some (but not all) of the benefits of a Trust in a more familiar format. 

 

FICs are another Inheritance Tax (IHT) planning tool, allowing family wealth to be passed down the generations. Much like Trusts, they can be used to separate the beneficial ownership of assets from the control; this is so you can start to pass on your wealth without fear that the kids or grandkids will squander it. FICs can potentially achieve more flexibility (than a Trust) in the structure of control and ownership, through the design of the Company Articles of Association, differing share classes, and Shareholder Agreements. The amount that can be settled into an FIC is not limited (as it is for Trusts) and the division of share capital is also a great way to gift part ownership in assets that would otherwise be difficult to split (e.g. property). 

 

FICs pay Corporation Tax like any other company, and while income can be paid out to shareholders in the form of dividends, the cumulative tax (Corporation Tax plus Income Tax) is usually c.5% higher than if the income was received directly by the beneficiary (c.10% higher from April 2023 with the increase in Corporation Tax rate). FICs, therefore, tend to work best for accumulating wealth for reinvestment, but ensuring that it falls outside of your estate for IHT purposes. FICs are particularly good for rental property businesses that are looking to grow and, unlike most other FICs, can still qualify for relief from the main rate of Corporation Tax. 

There are considerable nuances to the set-up and management of FICs; the normal IHT and Capital Gains Tax rules apply to both the transfer of wealth into the FIC and the transfer of ownership of the FIC itself. However, the flexibility of structure allows for plenty of tax planning opportunities.

 

If you would like more information, please contact our Private Client team on 01223 810 100 today. 

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