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Family Investment Company




A Family Investment Company (FIC) is a UK resident private company, and has almost the same legal set up as a standard limited company.  The significant difference is that the shareholders are almost always entirely made up of family members, along with different share classes and rights.   A FIC is often used to protect wealth, transfer assets and part of inheritance tax planning.

 

The founder typically transfers cash into the company in exchange for a combination of shares and loans.  Non-cash assets, such as property, can also be transferred into the company, although it is likely this will trigger stamp duty land tax and capital gains tax for the transferor.

 

The founder can then gift shares of the company to other family members, which could potentially be exempt from inheritance tax (there would be no inheritance tax if the donor survives seven years after the date of the gift) and, additionally, if the gift occurs shortly after company formation, then capital gains tax is minimised.


The different classes of shares are then issued to tailor the distribution of income and capital to the shareholders.   The most common set up is that the founder will hold full voting rights along with dividend rights on the shares.   Shares that are gifted to the family, and quite often the next generation, will hold the capital rights and dividend rights.   Sometimes these shares are held in a trust for family (which has a different IHT outcome on the initial gift).

 

The inheritance tax planning here means that the capital growth of the company is held with the next generation; hence on death, the founder’s shares are worth less as they do not hold the capital rights.   However, it should be noted that where voting rights are held it would mean that the shares would hold a value of circa 20-25% of the business.  

 

This planning comes in useful for property investors as the business of property letting is not considered a trading business for purposes of inheritance tax and also, is not a relievable asset therefore enters the death estate at full value.  By setting up a FIC and then using their loaned funds to buy property, the founder gains an income through dividends but the growth of the company value for their shares are reduced against the other capital holding shares.   Therefore, rather than 100% of the property entering their death estate, only a reduced portion of the value does.

 

Setting up a FIC and inheritance tax planning requires tax, legal and financial advice and should not be completed without the support of these services.   Forth Accountancy works with a range of professionals who can support your wealth journey so if you want to know more then please do get in touch.

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