A Family Investment Company (FIC) is a private limited company established to hold and manage family investments, such as property or shares as an alternative to a family trust. Usually, parents will establish the FIC for the benefit of their children and/or grandchildren.
There are many potential benefits to setting up a FIC.
The FIC can be used as vehicle to pool investments and potentially optimise returns. The main purpose of a FIC is for it to be used as a vehicle to pass wealth on to the next generation, free of Inheritance Tax (IHT).
A FIC also allows much more flexibility than a family trust. For example, parents can lend money to the FIC and should the need arise they can draw money back out against the loan. This isn’t possible with a trust.
A FIC can be funded in a number of ways. It can be funded through share subscription or by sale of assets to the company (however, this may trigger tax charges), but by far the most common way of funding is through loans.
A FIC can accumulate income and gains tax efficiently, and dividends can be directed to lower-rate taxpayers. The company’s profits are subject to corporation tax (25% from 1 April 2023) compared to rates of up to 45% for a trust.
Capital gains tax (and possibly SDLT) has to be considered if transferring assets into a FIC. Even so, and despite increased corporation tax rates, FICs can still be more tax efficient than other structures.
The company's Articles will set out the various classes of shares issued by the company. These will usually consist of:
Ordinary shares with full voting rights – usually issued to the parents
Growth shares – usually issued to adult children or trusts for grandchildren.
Although the structure of a FIC may seem straightforward, tax implications, applicable legislation and administration can be complex.
There are potentially double taxes on the profits of a FIC, which may be subject to corporate tax and then distributed to shareholders who will be taxed on their individual income. For these reasons, the FICs investment strategy is usually aimed at long-term capital growth.
We can provide tailored advice and support to help you set up and run a Family Investment Company. Our team has extensive experience in this area and can guide you through setting up an FIC. We can also provide ongoing advice and support to ensure your FIC runs smoothly.
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