Family Investment Companies (FICs)
We are currently implementing Family Investment Companies (FIC) for several of our clients.
A FIC can be established to enable family wealth to be passed to future generations in a tax-efficient manner whilst allowing the founder to retain significant control of the assets.
As well as being tax efficient, the flexible structure also offers increased asset protection in relation to divorce proceedings and creditors.
Inheritance Tax
Shares in the FIC can be given to family members, and after seven years, the value of the gifts will fall outside of the Donor’s estate for Inheritance Tax purposes. However, the FIC can be structured so that any growth is immediately outside of the estate.
Tax-Efficient Accumulation of Wealth
A FIC is a tax-efficient alternative to trusts as income and gains are taxed at 25%, which is far lower than the current rate of income tax for trusts of 45% and the higher and additional rates of income tax for individuals of 40% and 45%, respectively.
There are also no entry charges or 10-year charges for FICs like there are for trusts.
Structure
A FIC can be incorporated with alphabet shares to allow different shareholders to receive different levels of voting rights, rights to income and rights to capital on a winding up.
The FIC can be funded partly or wholly by way of a loan, which will allow the founder to withdraw capital from the FIC tax-free.
Case Study
We have recently received clearance from HMRC and incorporated a new holding company (Holdco) above one of our clients’ companies, which we will refer to as ABC Ltd. We also incorporated two FICs holding shares in Holdco – one FIC for each of our client’s daughters.
The FICs hold income-only shares in Holdco, which allows funds to be transferred to the FICs tax-free saving income tax each year. Our client holds 100% of the FIC’s voting rights, so he retains control, and his daughters hold the shares with income and capital rights; therefore, any growth in the company is outside the client’s estate, saving 40% inheritance tax on any growth.
We will then look to create freezer and growth shares in ABC Ltd. The growth shares and a proportion of the freezer shares can then be gifted, and after 7 years, the value of the gifts will be outside of the client’s estate. This can then be repeated in 7 years.
Get in touch
To speak to a member of the team about setting up a Family Investment Company (FIC), call us today on 0191 418 6920 or email admin@debere-ne.co.uk.