Family Investment Companies

Benefits of Family Investment Companies

• Tax Efficiency: FICs can offer significant tax advantages, particularly in terms of inheritance tax planning. By transferring assets into the company, families can reduce the value of their personal estates, thereby lowering potential inheritance tax liabilities. Unlike personal investments or trusts, FICs are subject to corporate tax rates, which are often lower than personal tax rates. This means that by re-investing the tax saving, the FIC accumulates wealth faster.
• Control and Flexibility: The structure of an FIC allows the founders to retain control over the company’s assets and investment decisions. Different classes of shares can be issued to family members, providing flexibility in how income and capital are distributed. Founders retain control over the long-term investment strategy and distribution of shares. By using trusts as part of the FIC structure, we can further increase control of shares held by children/grandchildren, as the founders can be appointed trustees of such trusts.
• Wealth Protection: Assets held within an FIC are protected from personal liabilities, offering a layer of security against potential financial risks. As a separate legal entity, the FIC’s assets are shielded from the personal liabilities of its shareholders.
• Succession Planning: FICs facilitate smooth succession planning by clearly defining how ownership and control of the company will be transferred to the next generation. This helps in minimising family disputes and ensuring continuity of wealth management.

Inheritance Tax Planning with FICs

Inheritance tax (IHT) can significantly impact the value of an estate passed on to heirs. FICs provide a strategic way to mitigate these taxes through careful planning and structuring.

• Gifting Shares: One of the primary methods of reducing IHT is by gifting shares of the FIC to family members. These transfers can be structured as potentially exempt transfers, meaning they may not attract IHT if the donor survives for seven years after the gift.
• Loan Arrangements: Founders can inject capital into the FIC through loans rather than direct equity investments. This allows for the repayment of loans without triggering IHT, providing liquidity to the founders while keeping the assets within the family structure.
• Utilising Exemptions and Reliefs: FICs can be structured to take advantage of various tax exemptions and reliefs, such as Business Property Relief (BPR), which can further reduce the IHT liability on the transfer of business assets.

Setting Up a Family Investment Company

Establishing an FIC involves several key steps:

• Incorporation: The first step is to incorporate the company, ensuring it meets all legal and regulatory requirements.
• Capital Injection: Founders typically transfer cash or other assets into the company in exchange for shares or as debt.
• Share Structuring: Different classes of shares are created to reflect the varying rights and interests of family members.
• Governance Framework: Implementing a robust governance framework is crucial for the effective management of the FIC. This includes drafting bespoke articles of association suitable for a FIC to protect its assets across future generations. For FICs with a large number of family members, it may also be worth considering putting in place a Family Constitution.

Importance of Professional Advice

Setting up and managing a Family Investment Company requires careful planning and expert advice. We will work alongside your accountants, tax specialists and financial advisors to ensure that the FIC is structured correctly and operates efficiently. Professional advice can help navigate complex tax regulations, optimise the benefits of the FIC, and ensure compliance with all legal requirements.

For more information on how to set up a Family Investment Company and tailor it to your specific needs, please contact our expert advisors on 03330 606 026 or fill in our contact form to arrange a consultation with our private wealth law team.