A Family Investment Company can apply to many different types of company structures used for different purposes, although originally, they began as estate planning vehicles to protect family assets ...
When setting up a Family Investment Company, you should be aware of general anti-avoidance provisions!
In this blog post, I'm summarising how an FIC can be a useful structure for a family business. The structuring of FICs is a complex area that has lots of options available on how shares are allocated so I always recommend taking professional tax advice before creating one.
Essentially, an FIC is a company that has been established with the specific purpose of meeting the needs of, usually, a single-family. FICs allow the founders of the business to retain some involvement within the company and possibly a managed income stream, but also pass the investments down to their children or grandchildren!
It may be the favoured solution when compared to trusts as they are a more familiar structure, though I do recommend that the option of a trust should always be considered. A Family Investment Company is usually set up as a new company with moderate levels of share capital to provide a reasonable capital base. Giving the family cash amounts in order to allow them to subscribe for shares means there are no issues with share valuation.
Investments can be in any form a company is allowed to hold and typically includes property and/or equities. It will normally have adopted bespoke articles of association that include restrictions on who can own shares and who can control the company.
If maintaining the ownership of the company within the direct family is one of the aims of setting up the FIC, articles can be written to restrict ownership of shares to bloodline members of the family only. This does mean the shares would still be in the estate of any child when they die and therefore if their estate specified a value to be transferred to a non-family member, this may have to be done using another asset within the estate.
"Most FICs are incorporated in the UK and are tax resident here, but some families incorporate offshore!"
The disadvantages of setting up an FIC are in the administrative requirements of running an actual company. There is the possibility of a double layer of taxation on profits taken out and a liquidation or demerger if children want to realise or split the business in future. This could be quite costly.
When setting up a Family Investment Company, you should be aware of general anti-avoidance provisions and the Disclosure of Tax Avoidance Scheme. Again, I reiterate, do take professional tax advice before setting up an FIC.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about setting up a family investment company, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
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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