A Family Investment Company (FIC) is a bespoke vehicle which can be used as an alternative or in conjunction with a family trust. Whilst a FIC is primarily a private company, generally speaking the shareholders are family members which enables parents to retain control over assets while accumulating wealth in a tax efficient manner to facilitate future succession planning.

FICs offer a lot of flexibility in distributing wealth to wider family members in a tax-efficient manner. They are often used as an investment vehicle to mitigate the initial immediate charges to inheritance tax (IHT) that can accompany a trust. A FIC can be set up in such a way to enable family members to have access to the wealth within the FIC whilst not having control over the underlying assets.

A FIC can be established with capital funds or by way of an interest free loan, which can be repaid over time, and the FIC can invest the capital themselves into an investment portfolio, property or any other asset. Alternatively, the directors/shareholders can transfer assets directly into the FIC (although there may be tax consequences to this).

A FIC can also be used in conjunction with a trust and this can offer protection as well as flexibility over the assets . Family members could be shareholders of the FIC as well as beneficiaries of the trust which allows flexibility in how benefits from the assets can be derived.

Trusts and FICs are complex planning vehicles and so we recommend that you speak to a member of our IHT and trust team before undertaking any planning around FICs and/or trusts.

What are the key advantages of an FIC?

FICs currently pay tax at 19% * on income and gains compared to an individual paying tax at their highest rate of income tax.

• Relief is also available to the company for interest on loans

• Relief is available for expenses incurred in managing the company’s investments

• The FIC can also claim a deduction for salaries and pension contributions paid to or on behalf of the employees or directors.

• The FIC could have more post-tax income available to reinvest and generate further income and capital growth than if investments had been held by individuals or trustees.

• If the FIC invests in shares, any dividend income received by the FIC could be exempt from corporation tax in the hands of the company.

• No inheritance tax (IHT) on the establishment of the company or the subsequent gift of shares to family members. Unlike a trust, an FIC is not subject to inheritance tax charges on each ten-year anniversary.

How can an FIC assist with IHT planning?

• A FIC can hold assets which can be used to generate income for future generations.

• When combined with a trust, a FIC can remove assets from an individual’s estate for IHT purposes providing certain conditions are met.

• With a corporate structure of a FIC, shares can be issued to family members or gifted to family members after incorporation.

• Shareholders can have different rights so that certain shareholders can have control over the assets and income distributions.

• The FIC could be funded by way of a loan which could shift the growth on the loan from the individual’s estate to within the FIC.

Are there any benefits of FICs beyond taxation?

Yes, the potential benefits of FICs can extend further than taxation such as offering the flexibility over distributing wealth to the next generation and protection over assets.

As a ‘tax-wrapper’, FICs can invest in a wide range of products including residential property.

The directors have control over the investment decisions of the FIC, as well as the distribution of profits. It’s not necessary for parents to retain a majority shareholding to continue to exercise control.

The articles of the FIC can be written to restrict or allow certain actions so that the FIC can be run in the way it was intended by the shareholders.

Is a FIC right for me?

An FIC may allow you a means of transferring value to other family members whilst still permitting you the retention of control. However, they are not always the most appropriate and, for many families, trusts remain the most flexible and appropriate tax-planning vehicles. If you would like to find out more about whether a FIC is right for you, please contact us.

* The main rate of corporation tax will increase from 19% to 25% from 1 April 2023 for companies with annual profits exceeding £250,000. A ‘small profits rate’ at 19% will be introduced so that companies with annual profits below £50,000 will not be impacted by the change to the main rate. Where a company’s profits fall between the upper and lower limits, marginal relief provisions will apply to bridge the gap between the two rates. However, the small profits rate will not apply to ‘close investment holding companies’ which by definition will include many FICs