There are various different options to consider when looking into estate planning. Traditionally, setting up a trust has been the preferred option for many. However, in recent years, the complexity of the legal and taxation requirements of a trust has led some to look for alternative solutions to wealth management.
One such option is to set up a Family Investment Company, or FIC. In this article, we take a look at what a FIC is, how it works, and its advantages and disadvantages.
What is a Family Investment Company?
A Family Investment Company is essentially a private limited company that has been set up purely to invest family assets. In such a company, parents can continue to keep control of their assets by being named as directors, as well as becoming preferential shareholders. Assets are paid into the company in various ways, and when required, shares and company ownership are simply transferred. FICs are a popular choice with those who have a significant asset value to pass down through the generations.
What are the benefits of Family Investment Companies?
With corporation tax rates currently lower than inheritance tax rates, Family Investment Companies provide a tax efficient alternative to traditional wealth management methods, while still retaining full control over your assets.
For many, the company structure may also be easier to set up and understand than the structure of a trust, while this solution can also be a good way to pass control down through the family gradually over time, and encourage children to take an interest in investing and the family assets.
What are the disadvantages of Family Investment Companies?
While setting up a FIC is currently a tax-efficient way of estate planning, it must be remembered that the government can change tax laws whenever they like – as the aftermath of COVID-19 has shown.
There will also be significant upfront costs involved in setting up a FIC – the cost of hiring lawyers and accountants to ensure that the company structure is fit for purpose – and there may be additional tax implications depending on the types of assets you want to include, and how they will be distributed. Putting a property into the company, for example, would have Capital Gains Tax and potential stamp duty implications, while regular dividend payments would be subject to both corporation tax and income tax, which could make a FIC less tax-efficient than other solutions.
As with any estate planning product, it is important to weigh up the pros and cons of Family Investment Companies before making a decision that will have an impact not only on the future of your assets, but on your dependents’ future too.
“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”