A Family Investment Company (FIC) is a private company structure in the UK, commonly used by families to manage and control their wealth while benefiting from the lower corporate tax rates compared to personal income tax. It can serve as an alternative to trusts for estate planning, providing a flexible way to pass on wealth to future generations while maintaining control.
Here’s a breakdown of its key features and benefits:
Key Features:
- Ownership and Control:
- Family members own shares in the FIC.
- Typically, the parents or older family members are the directors, controlling the company’s decisions, while younger generations may hold non-voting shares.
- Tax Efficiency:
- Corporation tax on profits is 25% (2024 rate), which is lower than personal income tax rates on higher earnings.
- Dividends paid to shareholders are taxed at their personal tax rate, but the company can retain profits for reinvestment, delaying personal tax liability.
- Capital gains within the FIC are subject to corporation tax, which is generally lower than personal capital gains tax rates.
- Estate and Succession Planning:
- By gifting or issuing shares to younger generations, families can pass wealth while retaining control.
- Gifts of shares can utilize the annual exemption to minimize inheritance tax (IHT).
- Upon death, shares in a FIC may be subject to IHT unless careful planning (such as the use of trusts) is in place.
- Asset Protection:
- The FIC structure can protect family wealth by ring-fencing assets within the company, shielding them from personal creditors.
- Flexibility:
- Families can tailor the share structure to suit their goals, issuing different classes of shares with varying rights (e.g., voting rights, dividend entitlements).
Considerations:
- Legal and Tax Advice: It’s crucial to seek legal and tax advice before setting up a FIC to ensure it aligns with the family’s financial and estate planning goals.
- Administration: The company will have legal requirements such as filing annual accounts with Companies House and corporation tax returns with HMRC.
FICs are particularly appealing for high-net-worth families looking for tax-efficient ways to preserve wealth and pass it on to future generations, while maintaining flexibility and control over the assets.
