If you’re looking to pass your assets on to the next generation of your family, then a Family Investment Company (FIC) could be the right option for you. Family Investment Companies are becoming increasingly popular, especially when compared with Family Trusts. Due to the costs of running a FIC, I don’t recommend setting one up unless you’re trying to remove over £1 million worth of assets from your estate.
What is a Family Investment Company?
A Family Investment Company can be a tax efficient vehicle used for estate planning. It is a private company whose shareholders are your family members. The parents can retain control of assets and accumulate wealth in a tax efficient way, whilst reducing the inheritance tax liability the family may incur.
How does it work?
- The parents provide funds to the company through an interest free loan or through shares
- The shareholders of the company are then made up of different generations of the family who subscribe to different classes of shares decided by the parents
- The beneficiaries enter into a shareholders agreement setting out what the shareholders rights are. In practice, this allows you to create shares that give you the voting rights but no rights to the capital, whilst giving the shares that hold the capital value to your children/grandchildren
How could it benefit me?
- Shares can be given to your family members without any immediate tax charges
- After 7 years the value of the funds falls outside of your estate for Inheritance Tax
- Investments are subject to corporation tax rather than personal income tax, which gives a saving of 25% when compared to a Family Trust
- Transfers above the £325,000 Inheritance Tax threshold are allowed without a tax liability
Is it right for me?
A Family Investment Company is most effective if you have a significant amount of money to invest. If you are looking at ways of reducing Inheritance Tax whilst still retaining control of your assets, then this could be the right path to take. If you’d like to find out more and see if this could work for you then please get in contact.