Family Investment Companies
Family is important to everyone, so we understand how important it is to gain peace of mind that your family will benefit from the wealth and assets you have accumulated throughout your lifetime.
Taking advantage of the tax benefits available can help ensure that your family gets the most out of its assets, reducing tax outgoings and increasing the amount of capital that can be re-invested to ensure continued wealth growth.
With increasing awareness of the tax impact when it comes to inheritance tax and succession planning, many families are turning to Family Investment Companies as a flexible, tax-efficient solution to protect wealth and hand it over to the next generation.
What is a family investment company?
A family investment company (FIC) is a UK-resident private company whose shareholders are family members across different generations, that usually invest money rather than trade. With a FIC, the Founder(s) can better manage and control the family assets now and in the future.
A family investment company is especially suitable for clients with significant assets, complex family arrangements, or concerns around tax exposure and succession.
What are the benefits of a family investment company?
As a FIC provides a tax-efficient way to manage your assets by holding them via a company, as well as giving families access to tax benefits and greater control over how their assets are distributed.
This tool for preserving wealth and generating further income for future generations can also help to improve family succession planning and make it easier to distribute your assets amongst family members.
- No immediate IHT charges
With a family investment company, there is no immediate IHT charge on any gift of shares made by you or another family member, as that gift is classed as being a potentially exempt transfer (PET).Therefore, if you or the family member who made the donation lives for 7 years after gifting the assets, you will no longer be liable for IHT. Being part of a FIC also enables the founder(s) transferring their assets to retain some control of the company, so long as the articles of association are drafted appropriately. - Lower tax on profits
Profit generated by your FIC investments is only liable to corporation tax at the rate of 25%. This is therefore lower than income tax, which is usually paid on profit generated outside an FIC at a basic rate of 20%, a higher rate of 40%, and an additional rate of 45%. Shareholders then only pay tax to the extent that the FIC distributes dividends – and if the profits are retained within the company, no further tax is payable. Where the investment income received by the company is in the form of dividends, this will be exempt from UK corporation tax. - Easier to grow wealth
You pay less tax on your assets due to you being charged corporation tax rather than income tax on your profits, leaving you with more money to re-invest in further investments that can help your family expand its wealth faster. - Better succession planning
A FIC will remain active if the company is still up and running, which can help to simplify long-term wealth management and succession planning for your family.Some of the shares in the FIC may also be held via a trust (or trusts) if minor beneficiaries are involved, or simply if the founder(s) wishes to exert additional control over the family’s wealth planning. - Retain control
Shares in the company can be issued to a family trust, allowing children or grandchildren to benefit from the value of the assets without immediately handing over control. This allows the founder to retain decision-making authority, while also setting a clear structure for how the company’s value is eventually passed on.
How we can help?
Professional advice should always be sought when carrying out planning of this nature, as there are many issues to consider – from paying out capital gains tax (CGT) on non-cash assets to ensuring you are always compliant with certain regulations (e.g. filing regulations).
By speaking to our team of chartered accountants in Walsall, we can provide expert advice to your family, and ensure you see the highest return on your assets and, therefore, the maximum financial growth for your family.
We also offer a range of other services to our clients, from corporate tax planning and support with R&D tax credits to estate planning and trusts.
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Choose Edwards Accountants today for your tax planning
If you are looking to preserve and pass on your wealth tax efficiently to future generations, then contact us today.