Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
A family investment company or FIC is nothing new. It is just a company which is used for investment purposes, and people have been doing this for decades. So, you may ask why the FIC has become so popular in recent years.
The reasons are twofold:
If you hold assets personally in your own name, such assets may be subject to IHT on death as well as profits earned during your lifetime could be charged to income tax at rates of up to 45%.
In simple terms, the reason is wealth accumulation. As a FIC pays less tax than you would if you personally invest in assets or held them in a trust, the income earned or payment received on the sale of those investments are taxed at a lower rate, which means the FIC has more money to re-invest in further investments. Over a number of years, provided that the FIC re-invests its gains, it will accrue greater wealth faster.
Following the Budget in early 2021 (and confirmed in October 2022), it was announced that corporation tax for companies will increase from 19% to 25% (although the 19% rate will still apply to companies with profits below £50,000 and a marginal rate for companies with profits between £50,000 and £250,000). FICs are usually split into 2 types in that they hold one or the other of the following types of investment:
Accordingly, even with the increased corporation tax rates from 2023, there are ways to mitigate such corporation tax, which means that FICs are still attractive for wealth accumulation, especially when compared to paying income tax.
For these reasons, FICs are set up for the long-term and not the short-term, the idea being that the founders of the FIC, being mum and dad, set up the FIC and inject the initial funds to invest in assets. Their children (and maybe their grandchildren) will also be shareholders and benefit from the growth created by the investments held by the FIC.
Another reason is that FICs, like all companies, have their own legal identity separate from the shareholders that own the shares in them. This has two benefits in that (a) the shareholders of the FIC benefit from limited liability (i.e. losses are limited to the value of the shares held by the shareholders), and (b), as mentioned above, the assets held by the FIC are exempt from IHT (provided the FIC is properly structured).
FICs are a very tax-efficient company structure to maximise the accumulation of private wealth whilst also ensuring that any future IHT bill is kept to a minimum.
The structure of the FIC will vary depending on your circumstances (i.e. family and existing assets). However, there are some common elements, including:
If you are considering using an FIC, there are a number of initial steps that you need to consider, such as how much you will invest in the FIC and what assets the FIC will invest in, are these existing assets or new assets?
If you have any more questions or would like more information regarding Family Investment companies, you can contact the Corporate Solicitors at Myerson Solicitors.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence