Submitted by
Sestini & Co | on Wed, 10/09/2019 - 12:34 | In
Investment,
Tax planning and pensions When working with our clients and their advisers to look at
estate planning, trusts have long been a popular mechanism. However, we are now
increasingly looking at Family Investment Companies as an option, particularly
for families looking at the most flexible and efficient way to pass investments
or wealth to future generations.
With the increased taxation costs and complexity of their
reporting requirements over the past few years, trusts have begun to fall out
of favour.
The rising cost of living and house prices affecting so many
younger people has also meant that offspring can be financially dependent or in
a less-than-optimum financial situation for longer, which can then lead to a
delay in parents transferring assets.
Naturally parents want to ensure their assets are protected
in the long-run and that is why Family Investment Companies (FIC) have become
so popular in recent years. A FIC is a bespoke vehicle which can be used
instead of a trust.
What is a Family Investment Company and how is it used?
A FIC is a private company that is set up by and for family
members, who are all shareholders, as a way to manage investments rather than
conducting an active business.
Whilst previously the preserve of high-net worth
individuals, they’re increasingly becoming a common form of estate planning.
The company could be set up as a UK unlimited company in order to reduce
the filing requirements, however, an unlimited company doesn’t offer the same
level of protection from creditors as a limited company.
The company will pay corporation tax at 19%.
Benefits of a Family Investment Company
One of the key benefits of a FIC is that it is
not subject to the initial inheritance tax charge of 20% if it exceeds the nil
rate of £325,000 so there’s no limit to how much can be invested before
becoming liable for Inheritance Tax. Income and capital gains are all taxed at
lower corporation tax rates too.
The money invested can also be adapted to specific
family needs with the person who set up the FIC being able to own shares with
voting rights attached to them and deciding when dividends are paid and to whom.
They are relatively easy to set up as assets are
often transferred into the FIC by a loan or cash transfer.
There are downsides to FICs as the tax position
could change in future.
Who would benefit from a Family Investment Company?
It may be worth pursuing a FIC if any of the following
apply:
- You have assets above your current or future
income needs
- You have more taxable income than you need
- You’re worried about inheritance tax
- You want to be able to pass your wealth on to
other family members over a certain period of time
- You’re looking for an alternative solution to a
trust or offshore succession planning
- You would like to keep control of your assets.
A FIC would be most beneficial for those who have
a significant amount of money to invest and who want to keep the money in the
company rather than drawing on it regularly. They’re also an attractive
proposition for those wanting to avoid a large inheritance tax charge and keep
control of their assets.
Contact us
If
you’re considering setting up a Family Investment Company and would like help
with any tax-related issues then come and speak
to us, give us a call on 01761 241 861 or email us today. We can work with you and your financial
advisers to identify tax efficiencies for your own or your family’s situation.
We will be pleased to advise you or to invite you into our
offices in Paulton, near Bristol and Bath, for a consultation.
