24 November 2023
A Family Investment Company (“FIC”) is a private company, incorporated under the Companies Act 2006, which is created for the purpose of holding investments for a family and is used as an alternative to family trusts. It is a company which you and your family have shares in.
A FIC allows the founders (usually parents) to create a structure where they can grow and manage the family wealth whilst maintaining control of it and in time, transfer the company to younger generations.
FICs have become popular in the recent past due to the changes in 2006 concerning the taxation of trusts resulting in their reduced popularity. A FIC is generally beneficial for larger investments – typically those over £1 million.
Setting up a FIC
The process of incorporating the FIC is the same as a private company. FICs are normally incorporated with limited liability but it is also possible for them to be created with unlimited liability, if there is sufficient justification to do so. An example of where this might be appropriate is when there is a need to preserve the privacy of the shareholders. Unlimited liability companies are not required to file accounts at Companies House, thereby providing greater privacy to the assets of the investors.
A FIC is usually incorporated with subscriber shares issued at nominal value to individual family members. Typically, there will be varying classes of share with different rights attached, for example voting rights and rights to dividends can be attached to shares only held by the parents so that they can retain control of the FIC.
Funding a FIC
Once a FIC has been established it can be funded by gifting or loaning assets.
Assets gifted can be made up of property, share portfolios or even cash. Moving non-cash assets into a FIC can crystallise other taxes such as stamp duty and capital gains tax, so each asset needs to be considered on a case-by-case basis.
If the asset is only cash, then it can be loaned to the FIC. This would also allow flexibility to extract funds from a FIC without needing to draw dividends, subject to the FIC having sufficient distributable reserves.
Tax advantages of a FIC
- The FIC will pay corporation tax at 25% (the reduced rate of 19% may not be claimed by close investment-holding companies and this unlikely to apply to a FIC) compared to up to 45% personal tax payable for individuals.
- Capital gains made by a FIC will be subject to corporation tax at a rate of 25%, as opposed to capital gains tax.
- There are generally no inheritance tax liability arising from putting money into the FIC. Nevertheless, there may be future lifetime tax charges on all gifts which could include those within a FIC. However, no such legislation provides for this yet.
If you require any further information or advice, please get in touch with Edward Lee on epl@blasermills.co.uk.