Family Investment Companies

A Family Investment Company (FIC) is a private company established to hold and manage investment assets, often for the benefit of multiple family members.

While the concept has been around for decades, FICs have gained significant popularity in recent years due to their tax efficiency and benefits for estate planning.

The reasons FICs have seen a rise in popularity are twofold:

1. Assets held in an FIC are outside of your estate when calculating any liability to inheritance tax (IHT) (subject to proper structuring), in which case no IHT is payable on such assets; and
2. In 2006, the government made a change to how trusts are taxed, making them less attractive to hold investment assets. In comparison, corporation tax (the tax paid by companies) has reduced from 20% (in 2015) to the current rate of 19%.

If you hold assets personally in your name, such assets may be subject to IHT on death as well as profits earned during your lifetime could be charged to income tax at rates of up to 45%.

Why use a Family Investment Company?

In simple terms, the reason is wealth accumulation. As an FIC pays less tax than you would if you personally invest in assets or held them in a trust, the income earned or payment received on the sale of those investments are taxed at a lower rate, which means the FIC has more money to re-invest in further investments. Over a number of years, provided that the FIC re-invests its gains, it will accrue greater wealth faster.

For these reasons, FICs are set up for the long-term and not the short-term, the idea being that the founders of the FIC, being mum and dad, set up the FIC and inject the initial funds to invest in assets. Their children (and maybe their grandchildren) will also be shareholders and benefit from the growth created by the investments held by the FIC.

Another reason is that FICs, like all companies, have their own legal identity separate from the shareholders that own their shares in them. This has two benefits in that (a) the shareholders of the FIC benefit from limited liability (i.e. losses are limited to the value of the shares held by the shareholders), and (b), as mentioned above, the assets held by the FIC are exempt from IHT (provided the FIC is properly structured).

FICs are, therefore, a very tax-efficient company structure to maximise the accumulation of private wealth whilst also ensuring that any future IHT bill is kept to a minimum.

If you are considering using an FIC, there are a number of initial steps that you need to think about, such as how much you are going to invest in the FIC and what assets the FIC will invest in, are these existing assets or new assets?

Whilst we can advise you in relation to the legal structure of the FIC and drafting the relevant documents, it is essential that you also seek advice from your accountant or tax advisor and your financial advisor.

If you don’t have such advisors, we would be happy to make the necessary introductions.