A family investment company (FIC) is a company set up specifically for investment purposes rather than trade. The corporate entity is set up as a normal company and is limited by shares. Property, cash and equity often make up the investments held within an FIC.
A FIC is set up by the founders (often parents or grandparents), who transfer cash or assets, usually by way of a loan into the FIC or by using incorporation reliefs.
Such a structure can result in significant tax savings as profits that occur in a FIC are taxed at corporation tax rates which are lower than tax rates on personal income or capital gains.
There are also certain benefits for Inheritance Tax (IHT) which can make an FIC an alternative to trusts.
Who should consider using a Family Investment Company?
FIC can be useful for individuals who are higher rate or additional rate taxpayers who have a or wish to set up a portfolio of investments. They are often used for long term multi-generational tax planning purposes.
Advantages of a FIC
The benefits of family investment companies are as follows:
- Profits from the investments are subject to Corporation Tax rather than higher rate income tax.
- Preservation of wealth for future generations.
- You can keep control over the assets in the company by being named as a director and preferential shareholder. The gives flexibility over how the income and capital rights are structured.
- Full tax relief for interest paid on residential mortgages.
Disadvantages of Family Investment Companies
- If putting property, rather than cash into an FIC, this may trigger a capital gains tax charge and a Stamp Duty Land Tax charge.
- Set up costs and ongoing administration costs for corporation tax returns and accounts for the FIC can make it a more expensive option. Before committing to a decision speak to us about our fee structure.
- A FIC may not be the correct structure if all the profits from the investments are to be extracted.
