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Family Investment Companies

Tuesday 06 April 2021
Family Investment Companies

A Family Investment Company (FIC) offers an alternative to the traditional trust structure for any UK domiciled individuals looking to manage their family’s exposure to inheritance tax.

 

We provide a summary of when a Family Investment Company could be considered as part of your succession planning.


What is a Family Investment Company?
A limited company that is formed with specific share classes to separate the income and capital value of the company.

The family members are the shareholders of the company, and could also be directors if they wished.

If the family members were also directors, consideration would need to be given to their tax residence and how this would affect the tax residence of the company.

 

What are the different classes of shares and how does this work?
Different classes of shares can be created; with non-voting shares gifted to children in order to hand wealth down the generations until such time as they are given added responsibility.

For example, parents will typically own the share class that entitles them to the income and voting rights, so they are able to benefit from the income and run the company during their lifetime; whilst the younger generation owns the non-voting share class that entitles them to the capital value of the company.

 

Wouldn’t the gifting of shares from parent to child be taxable in the UK?
The gifting of shares is a ‘Potentially Exempt Transfer’ (PET) which enables a UK domiciled individual to make gifts of unlimited value that are exempt from tax; provided that the donor survives for seven years.

 

Why would an FIC be used instead of a trust?
Depending on an individual’s personal tax position, it is sometimes not efficient or advisable to set up a trust.

For example, an individual domiciled in the UK would incur significant inheritance tax charges in the UK if they settled their assets into trust. Setting up a company does not incur such charges because the individual retains legal ownership of the assets.

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The contents of this document are based upon our current understanding of HMRC’s tax practice as at March 2021 which is subject to change.

 

The suitability of the arrangement will depend upon the circumstances of the individual - we therefore recommend obtaining UK tax advice to confirm the personal tax position of the UK resident shareholders.


 


Please contact Hannah Roynon-Jones for more information about Family investment Companies and to discuss whether a FIC could be an appropriate arrangement for your particular circumstances.

Email hannah.roynon-jones@alexpicottrust.com 

Telephone + 1534 753777

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