Family Investment Companies

A Family Investment Company (FIC) is a bespoke private company, which can be used as a tax-efficient alternative to family trusts. A FIC is a flexible structure, allowing families to define how specific family members benefit through varying rights attaching to shares, or the number of shares in issue. The directors and shareholders of the FIC are normally family members. As with trusts, the structure of the FIC can enable parents/grandparents to retain control over assets, whilst accumulating wealth in a tax-efficient environment and facilitating future succession planning. It is preferable to set up FICs with cash (usually by loan), as the transfer of property or shares could create capital gains tax and stamp duty liabilities.

How can Family Investment Companies (FICs) help reduce Inheritance Tax?

A FIC can help families manage their exposure to Inheritance Tax (IHT) in several ways. The key features and benefits of a FIC are as follows:

When the FIC is formed, shares can be given to family members without incurring any immediate tax charges and, after seven years, the full value of what has been given away will pass out of the estate of the founders, so avoiding any IHT

If the founders lend initial capital to the FIC, any growth in the value of investments held by the FIC will be outside the founders’ estates

The founders can create distinct classes of shares, so enabling them to decide which of those share classes (including those retained by the founders) receive the dividend income declared by the company (and the capital if the company is ever wound up)

If shareholders have a minority interest in the FIC, the value of their shareholding will be discounted on death for IHT purposes, taking into account the size of their holding and their inability to sell the shares or demand income from the company

Unlike trusts, the FIC will not pay periodic charges to IHT which apply to trusts at up to 6% every ten years, or exit charges if and when capital is distributed although there are other tax charges that may apply

A FIC may provide useful protection in the event of a shareholder’s divorce. The FIC can be structured so that shares can only be held by direct family members (excluding spouses).

What is the difference between a trust and a family investment company (FIC)?

Trusts and FICs are alternative structures for holding family wealth and both can be used for IHT and estate planning purposes. Usually, FICs are set up with cash rather than specific investments to avoid tax charges arising at the point the assets are transferred into the FIC, whereas trusts can potentially receive a much wider range of assets when they are set up. Both trusts and FICs are subject to their own tax regimes and careful thought needs to be given in terms of which would be the appropriate structure in any given set of circumstances.

We have one of the largest and most experienced teams of will, estate and tax planning lawyers in Kent and the South East, which has been trusted by generations of families. We work with you to protect your assets and pass on your wealth to the next generation in the way that best suits your circumstances.

Our estate and tax planning lawyers have extensive experience of supporting high and ultra-high net worth individuals and families with complex asset structures and international elements. We can help you to plan for the future and minimise your tax liabilities, for example through the use of trusts and other appropriate structures.

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