Family Investment Companies

A Long-Term Solution?

There has been an increase in the use of “Family Investment Companies” (FICs) in recent times and the term has become widely quoted in financial circles. But what does it mean and why use one?

What is a Family Investment Company (FIC)?

It is a private limited company, with the shares held by various family members, usually from different generations.

It typically carries on an investment business (e.g., properties, listed investments) and has different share classes which can have varying rights. This gives flexibility while keeping tight control on the company.

A shareholders’ agreement is generally advisable to set out how the company is run, remuneration of working shareholders etc.

Why would a family want to use an FIC?

A long-term solution, which can be used rather than a trust for example, which can be perceived as complex and no longer as flexible and tax efficient as they were.

It can be a vehicle to provide income and capital tax efficiently, protect family wealth from divorce, bankruptcy etc and pass it down the generations, either with or without trusts or other companies.

When property and share values are low or have fallen, it could be an opportune time to undertake such planning.

A practical benefit of using an FIC is that shares can be controlled easily – e.g., dividend flexibility, voting rights, possible pension contributions, how and to whom the shares can be disposed of etc.

Subject to “entry” charges (e.g. Capital Gains Tax and Stamp Duty Land Tax) funds and assets can be potentially transferred into the structure with the transferor continuing to benefit, which is often not the case with trusts.

A FIC is usually funded by interest bearing loans or preference shares (future growth can escape IHT but some access to capital retained).

The directors (who are also usually shareholders) make the decisions as to how to invest the funds to generate income or growth.

Any profits are taxable, but at corporation tax rates, so retaining the profits can be beneficial compared to owning the assets personal. Also, if the company receives dividends, these are generally not subject to corporation tax, so leaving more profit to pay out to a shareholder later.

(The above is based on legislation currently in force and is not to be construed as formal tax advice).

We are increasingly talking to our clients about FIC’s and if you want to explore whether it could fit in with your long-term plans click here to book an initial free consultation with tax director Jon Miles, or just contact him on 01225325580 or jm@richardsonswift.co.uk To see more guidance on business tax click here to see more related articles.