Let’s be clear. This strategy is for the really quite wealthy. It makes sense to have at least £5 million of investable assets and probably more like in excess of £10 million of investable assets before a Family Investment Company (FIC) can make obvious sense. Additionally, little or no income/profits from the FIC should be required in the near term because FICs are the most tax efficient when the income and gains is retained and reinvested by the company over a long period of time (rather than paid out to the ‘shareholders’ early and on an ongoing basis). But if that’s the case then it really can make a lot sense… ​

Typical FIC Structure

A typical Family Investment Company (FIC) structure involves the ‘senior’ family member(s) setting up a company in which they hold the voting shares (often referred to as the ‘A’ shares). These shares carry the right to appoint directors and vote at general meetings, which means they effectively control the company.

Typically the ‘B’ shares would be held by the next generation. Often these ‘B’ shares have no voting nor control rights leaving the ‘A’ shareholders in control of whether, for example, dividends are paid out. ​

Inheritance Tax Planning

The senior family member(s) would typically seed the FIC with a loan which would mean that the company could provide a tax-free income to the senior family member(s) from the company’s income/gains and via a gradual repayment of the loan. ​

FICs vs Trusts

The downside of FICs is that it is possible that the tax rate on ‘paid out’ dividends is quite high, owing to the double hit of corporation rate plus dividend tax. However, trusts, another typical option for wealthy families, usually incur punitive taxes as well especially if it is a ‘discretionary’ trust and the amount involved is greater than the ‘nil rate band’ of the ‘chargeable lifetime transfer’, which is £325,00. In plain English, if the amount put into trust is greater than £325,000 then an immediate tax needs to be paid; if there are millions of pounds that could be put into trust then a Family Investment Company should be considered.