Family Investment Companies could cut taxation bills

A Family Investment Company (FIC) is an alternative to a family trust and is a tax-efficient way of handling family financial affairs.

It is effectively a private company where the shareholders are family members. It is designed to allow parents to tax-efficiently gather wealth for the family and ease succession planning.

Those investments may comprise cash, loans, residential or commercial properties and share portfolios, which are generally held to generate income or capital growth or a combination of the two.

The main benefits include:

·        Lower personal tax liabilities

·        Wealth preservation for future generations

·        Tax-free fund transfers into the company

·        Control retained over investment decisions

Each family’s circumstance is different and needs to be looked at individually by your professional adviser.

Profits are taxed at Corporation Tax rates, which is typically lower than income or capital gains taxation incurred by an individual.

This can create a significant tax saving, especially if you are paying tax at the higher or additional rate.

An FIC allows the founders of the business to retain some involvement in the company and possibly a managed income stream but also pass the investments down to their children or grandchildren.

The FIC can be set up with a modest level of share capital, e.g. 10,000, £1 ordinary shares to provide a reasonable capital base.

Control of the company

The parents provide funds to the FIC in the form of either interest-free loans or by subscribing for preference shares. This will not be regarded as a transfer of value for Inheritance Tax (IHT) purposes and these funds can be extracted from the company at a later date tax-free.

The parents also subscribe for voting shares in the FIC, which give control of the company at shareholder and board level.