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A Family Investment Company (FIC) is one way in which you can pass on wealth to the next generation at the same time as retaining control, benefiting from asset protection and, if you want continuing to benefit from the assets given away.
The FIC is a useful tool for wealth planning and can be used as an alternative to trusts, or work with trusts to help with the growth and transition of wealth for the next generation.
What is a FIC?
A FIC is generally a private company whose shareholders are family members, including family trusts in some cases, but operated by a smaller number of directors.
Why should I consider setting up a FIC?
A FIC can provide you and your family with a number of estate and tax planning advantages, including:
- Wealth preservation for future generations.
- You can control investment decisions.
- Tax efficient profit accumulation.
- Privacy can be protected through shareholder agreements and family charters.
- Companies have tax advantages for income, particularly in respect of the receipt of dividends and property investment.
- Flexibility and control over income streams.
- Unlike trusts, you are restricted to your Inheritance Tax (IHT) nil rate band before incurring immediate IHT charges.
- FICs are less vulnerable to changes to IHT, and so help to create a more certain estate planning strategy.
Whilst typically used to pass on and grow family wealth, FICs can also be used for other situations including business-succession planning, funding school and university fees and retirement planning.
Who is a FIC suitable for?
A FIC is suitable for anyone who:
- has considerable assets (typically those assets won’t qualify for IHT relief, such as cash);
- is interested in long-term wealth generation;
- is concerned about how their wealth will be handed down to the next generation; and/or
- wants to operate their investments through a corporate wrapper.
They will want to do this in the most tax efficient way possible, and will often want to retaining some control over those assets, whilst incorporating a degree of asset protection. Our clients are varied in their background, but many are businesses people, landowners, property-investment portfolio owners and wealthy families.
The administrative requirements of a FIC are usually familiar to our entrepreneurial clients but given the changes in recent years to trust administration, the requirements are not too dissimilar.
What assets can a FIC hold?
A FIC can hold a wide range of assets including property and other physical assets, investment portfolios and cash. As the FIC makes investment and accumulates cash, that cash can then be used for a whole manner of purposes. A FIC might choose to lend funds to family members to help them establish other businesses or it might choose to invest in business or other assets itself.
FICs and Trusts
Trusts often feature as a component when planning a FIC. Settling into trust shares in a FIC can help to created tax efficiencies in the future, such as by directing income to younger generations who frequently have little or no income themselves. This helps to make use of their marginal rates, whilst not placing the shares themselves in their direct ownership.
Trusts can also help benefit vulnerable members of the family, helping to ensure they benefit without actually passing to them ownership and control.
How can Roythornes help you establish a FIC?
A key feature of a successful FIC is well-drafted, bespoke documentation which governs how it operates and its purpose. The documentation will likely include articles of association, a shareholders agreement and perhaps a family charter. The documents will contain a number of provisions which will govern amongst other things:
- Distribution of profits and capital value (which shares will grow in value and which will not).
- Decision making.
- Director appointments and rules on what will happen if a director dies, loses capacity or experiences financial or relationship difficulty.
- Share transfer provisions.
The exact make up of the provisions will depend on your individual and family circumstances, and our experienced team will take the time to listen to your objectives and ensure that the resulting FIC meets those.
Our team have considerable experience in the advice, establishment and running of FICs.
Roythornes’ Tax, Private Client and Corporate teams work closely together to ensure that all aspects of the FIC are created in a way that benefit you and your family, and so that it sits well with your estate and business tax and succession planning. We will also liaise with your financial advisers to ensure that everyone is aware of the ‘bigger picture’ regarding your future plans and how this may impact on your situation.