Family Investment Companies (FICs) are a popular, tax-efficient way to pass on your family wealth to future generations. Could a FIC be the perfect fit for your family? We’ve answered the key questions below to help you find out.
WHAT IS A FAMILY INVESTMENT COMPANY (FIC)?
A FIC is a private limited company – but it holds investments instead of trading. FICs are most commonly set up by parents or grandparents. And they’re used to manage and control the wealth, property and investments held by the family.
The family members who set up the FIC will usually be the directors. People subscribe to shares to get money into the FIC, with different classes of shares available, each with different rights. Or, assets can be put into the FIC by way of gifts.
WHAT ARE THE BENEFITS OF FICs?
FICs offer a number of sizeable benefits for parents and grandparents looking to retain control over their assets whilst accumulating wealth in a tax-efficient environment and allowing for succession planning.
The flexibility and security FICs offer are two of their biggest benefits.
The founding family member can decide which family members benefit and how, with different rights attached to different shares. You can also use a FIC to manage succession, accumulate wealth and potentially protect assets from Inheritance Tax liability.
When the FIC reaches its ‘hurdle value’, decided by you, any growth above that will go to the children and/or grandchildren, making FICs an excellent way for families to pass on wealth to the next generation.
The FIC can also be set up to ensure the children receive nothing before this hurdle value is reached, protecting your family from any financial slip-ups on the younger members’ behalf.
If you’re a trading company with a lot of cash tied up in the company, a FIC is a good way to take that money out, loan it to a new company or restructure the group.
If you’ve inherited a large amount of money and want to secure it for your children and their children, a FIC could be the solution. Here, you can put the cash into a productive legal structure and curate the wealth over generations.
Whereas trusts only last for 125 years, a FIC continues as long as the company is around. So, they can be a good option for very long-term planning too. What’s more, FICs can be used in conjunction with family trusts, and if you have grandparents (not parents) who can settle shares into the trust, this allows you to use your grandchildren’s personal allowances.
HOW CAN WE HELP?
Any FIC will involve a substantial amount of cash, and the details can get complex. So, it’s recommended to work with an adviser who has significant experience in setting up FICs.
Deciding and creating the right share classes for your family is a key part of the process. But remember, by setting up a FIC, you’re creating a company. That means you’ll need to produce accounts, file with Companies House and pay corporation tax returns along with all the usual compliance.
In conjunction with Cooper Parry, we have all the expertise you’ll need to successfully establish and operate a FIC.
Our multi-skilled Tax team can help you structure the FIC tax efficiently, prepare financial reports, and cover key considerations, like tax compliance or the implications of transferring assets.
CP Law guarantee the financial reporting is properly implemented and compliant, incorporating the FIC and drafting and reviewing key legal documents, including articles of association and shareholders agreements where necessary.
Finally, Cooper Parry Wealth can help you align the FIC with your wider financial planning, manage risk, structure your investments and realise your ideal lifestyle and legacy. Now, and in the future.
So, if you’ve got any questions about FICs, we’ve got the specialists in-house to give you expert advice, tailored to your position.
LET’S MEET A FEW OF THEM
AMY ROBINS
TAX PARTNER, PRIVATE CLIENT TAX
Amy provides advisory services to private client individuals and has significant experience in Inheritance Tax and succession planning, particularly in relation to trusts and estates.
SOPHIE LANG
ASSOCIATE PARTNER, CP LAW
Sophie specialises in corporate law working with clients of varying sizes spanning multiple sectors. She has experience in M&A, restructurings and working with private clients implementing family investment companies.
BEN WAITE
Relationship Partner, Cooper Parry Wealth
Personal finance can be daunting and time consuming. Wealth management is about making the complex simple, adding common sense and structure, so clients feel empowered to use their financial resources to achieve what’s important to them. Ben’s passion is for advising on how clients can preserve their wealth for future generations by helping them make sensible financial decisions.
We recommend that appropriate advice be sought if you’re considering setting up a FIC. FICs aren’t suitable in all situations and alternative options may provide a better solution. Please see our recent article on 8 TOP TIPS TO HELP YOUR CHILDREN START SAVING for alternative approaches.
Investment into any portfolio should be regarded as for the medium to long-term. Past performance is no guarantee of future returns and the value of investments and the income from them are not guaranteed and can fall as well as rise. The returns from your portfolio will fluctuate over time. On encashment of your investment, you may not get back the full amount invested and could lose part or all of your capital. There are no guarantees that your portfolio will achieve the returns you need to meet your goals. Changes in exchange rates could affect the value of overseas investments and the effect of inflation could reduce the future purchasing power of your investments.
This information is based on current UK tax law and will be affected by changes in law and your residency/domicile status. A Family Investment Company is not regulated by the Financial Conduct Authority. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action.
