A family investment company is a corporate structure designed to operate in a similar way to a family trust. It involves setting up a company and putting your assets into that company.
At Grayfords, we can help you set up a family investment company to enable you to pass significant wealth to the next generation, whilst retaining control over assets and accumulating wealth in a tax efficient manner. We are able to advise you in relation to the legal structure of the FIC and drafting the relevant documents in a way that works for the individual and reflects the family dynamic.
Frequently asked questions
Why setup a family investment company?
A family investment company can be a tax-efficient and practical way to manage your assets for future generations. You should think of it as long-term estate planning. It can be a particularly good option when you have children who would like to benefit in future, but can also be a useful way to ensure that multiple generations of your family benefit at each stage of their lives.
Who may find them attractive?
A person who has already created his or her own business and who has young adult children whom he or she wants to protect and educate. Alternatively, a family who has received a significant inheritance and who wish to preserve and control family wealth whilst minimising conflict within the family. They can also be attractive to sophisticated investors or hedge fund managers who wish to benefit their family or educate their children in the world of investment, without them being exposed to the direct risks and responsibilities of running their own business.
What are the main advantages of a FIC?
No upfront IHT charges, tax efficient accumulation of profits, total control over investment decision and preserving wealth for future generations.
How is the family investment company set up?
Typically, parents provide funds either by subscribing for shares or providing loans to the company. The class of share is generally used to differentiate between the generations, with the parents having voting shares and their children only economic rights. The FIC can also invest in cash or property.
Who operates the company?
The parents are usually the company directors, but the children can also be involved in the investment decisions of the business. It is the directors of the company who make the day to day decisions of the company and determine the timing for payment of dividends. If any family members are employed by the company, a salary can be paid to them subject to the usual income tax rates.
How are they taxed?
Corporation tax is payable upon company income and capital gains. Most dividends received by a company are exempt from tax. Shareholders are taxed at various rates on dividends after the dividend allowance in the usual way.
Are there any drawbacks?
A FIC can be tax inefficient if all of the company profits are paid out to the family as this creates the potential for double taxation. The company pays Corporation Tax on its profits and then the shareholders will pay Income Tax when profits are distributed in the form of a dividend. The FIC is therefore more tax efficient if the profits are retained in the company. If assets, rather than cash, are transferred into the FIC, this may trigger a CGT charge and if property is transferred this could trigger a Stamp Duty Land Tax charge. A transfer of cash is by far the best option to minimise the family’s tax exposure.
How do I know if a FIC is right for me?
Family companies work best for those with a substantial amount of money to invest, (generally in excess of £1million) and who are willing to keep it in the company to grow, rather than take it out on a regular basis.