Wealth Preservation Using Family Investment Companies
Is one the right structure for you?
POSTED BY HELEN BEAUMONT ON 20/04/2018 @ 8:00AM
Family Investment Companies (FICs) are becoming more popular as parents want to preserve their wealth and pass it on to their children and grandchildren. They are used as an alternative to a trust ...
Family Investment Companies have both advantages and disadvantages. Is one right for you?
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An FIC is a private investment company where the individual family members (and their trusts) are the directors and shareholders. They are very flexible vehicles allowing the family to decide who gets what by the number of shares allocated.
"Shares can be passed on to the next generation without the older family members losing control of the FIC!"
As the UK has one of the lowest corporation tax rates of the G7, it can be a tax efficient solution to family succession issues though it is essential to consider the protection, commercial and emotional aspects Family Investment Companies offer.
FICs are taxed the same as other companies and pay corporation tax on their annual income and gains. Unlike individuals, FICs still benefit from indexation on capital gains, removing an allowance for inflation from the charge to tax.
"FICs are often most efficient as long-term investment vehicles when profits are retained within the Company!"
Any available cash transferred into an FIC is tax-free and there's no charge to Inheritance Tax on the gift of shares from one shareholder (parent) to another individual (a child or grandchild).
The FIC would only pay tax at a rate of 19% on the profits that it generates, but that's 0% on dividend income. Shareholders only pay tax to the extent the company distributes income. If the profits are retained by the company, no further tax would be payable.
"There are some disadvantages though!"
When non-cash assets are transferred into the FIC, the donor may incur CGT at 28% which is based on the market value of the asset at the time of transfer.
Trusts continue to be more tax-efficient if you transfer assets in without incurring an IHT charge. This is best done when assets qualify for a relief such as Business Property Relief or Agricultural Property Relief.
Double taxation can happen when using a Family Investment Company. Profits are subject to Corporation Tax at a rate of 19%, then are subject again to income tax when distributed to the shareholders.
The FIC will also have to comply with company filing regulations, and there are costs to consider when setting up and running the alternative of a trust.
"Would you like to know more?"
If you'd like to learn more about Family Investment Companies and understand if one is right for you and your family, then do call me on 01908 774323 or click here to ping me an email and let's see how I can help you.
Until next time ...
More about Helen Beaumont ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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