Family Investment Companies
A tax efficient way of transferring wealth to future generations
What is a family investment company?
Family Investment Companies have become a popular choice for wealthy individuals as a useful tool for tax and family wealth planning. A Family Investment Company (FIC) enables you to pass on wealth to future generations in a tax efficient way. It is a corporate structure, controlled by a board of directors, which operates in a similar way to a discretionary trust. Profits are extracted via dividend payments. The formation of family investment companies was driven by a change made by the government in 2006 that made trusts a less attractive option to hold investment assets. The development of FICs were a solution for people who sought a better way to protect their wealth.
Why set up a family investment company?
A FIC enables wealth to be passed on, whilst helping you to protect and retain control over your assets. It can also be the most tax efficient way for you to grow your wealth, as taxation is less than if you personally held assets in a trust, resulting in more money for you to re-invest and grow.
Governing documents are specific to each FIC and provide for the distribution of profits, the return of capital, appointment of directors and share transfers. Other benefits of setting up a family investment company vs a trust include:
- Dividend income is not subject to tax.
- Other income and gains are subject to corporation tax at 19% which, compared to a trust, offers a saving of 26%.
- Shareholders can receive varying levels of income during different periods of time.
What is the inheritance tax advantage of a family investment company?
When considering your family wealth, it is important to understand the tax implications of the options available to you. Family investment companies provide the following inheritance tax advantages:
- Shares can be gifted to family members without any immediate tax charges.
- After seven years, the full value of shares passes out of the estate of the FIC founders, thus avoiding any inheritance tax.
- Where shareholders have a minority interest in a FIC, the value of their shareholding will be discounted on death for any inheritance tax calculations. This can often significantly reduce inheritance tax owed.
How can a family investment company protect wealth in the event of divorce?
Family investment companies benefit from a high level of control in how your wealth can be protected, and the benefits should be considered in change of circumstances including in the event of divorce.
- Shares in a FIC cannot be held by non-family members, and this includes ex-spouses.
- Assets of a FIC are generally beyond the reach of the family courts.
- The value of shares held by a divorcing shareholder will be taken into accounts as an asset but their value is always negotiable.
How do I set up a family investment company?
Before setting up a family investment company, there are a number of initial steps that you need to think about. These include the consideration of how much you are going to invest and what asset the family investment company will invest in.
Growing and running a family business presents unique challenges. Our experienced team of lawyers, based in Maidstone and Canterbury, are ready to help with any legal advice you need on setting up a family investment company. Our award winning team has a wealth of experience to offer you a considered business approach while giving you specialist advice and assistance.
How can Brachers help me set up a family investment company?
To start the process, call us on 01622 690691 or fill out our online enquiry form and one of our team will be in touch to discuss how we can help you. If you would like to understand the family investment company set up cost, our team can also discuss this with you and together we can protect your future.
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