There’s been a sharp rise in interest in Family Investment Companies (FICs) as a way to protect, grow and pass on assets. However, it is important to understand the pros and cons
As families (and their advisers) look for ways to plan their inheritance arrangements tax-efficiently, FICs are increasingly popular – often seen as an attractive alternative to a trust or to complement a trust. So, what is a FIC and who are they suitable for?
A FIC is a private company with shares held by family members. In order to deliver the inheritance planning benefits, different shares carry different rights, typically:
- The parents put cash or other assets which they want to pass onto their children or other relatives into the FIC. Typically, the parents hold shares with voting rights only, giving them control over the company at board and shareholder level but no right to the capital value of the assets or dividends.
- Their children (or a trust for the children) have ‘non-voting’ shares, giving them rights to the capital value of the assets held in the company, and dividends.
- The company’s articles of association (and perhaps shareholders’ agreements) are tailored to the individual family’s circumstances including for example restrictions on the shareholders’ ability to transfer shares outside the family.
Tax attractions
The headline attraction of a FIC is that the structure can result in considerable saving on inheritance tax.
Advocates of FICs also point to other tax benefits before that stage. Even discussing succession issues can be really helpful to a family and help relieve concerns about such matters.
The cons
Without going further into the technical details of FICs, there are two main cons.
- They are complex to set up, involving both accountants and lawyers. As a result, they’re mainly relevant to families where the parents have over £1 million of assets they want to pass on to children.
- Tax rules change, and anyone with a FIC needs to be alert to this.
Other relevant personal planning
Although FICs can include clauses on what happens to the shares on a death or a divorce and there can be restrictions put on the transfer of shares so they have to remain within the family, it would also be sensible to speak to a Private Client lawyer. An expert is this area will be able to help you ensure that your personal documents such as your Will and Power of Attorney reflect how matters involving your FIC should be dealt with if you were no longer around or able to make decisions.
FICs are certainly popular right now and could work very well for many families. However, it is essential to seek expert advice from people with experience in this area who can assess the pros and cons for your own circumstances.
