Family investment companies (FICs) are becoming increasingly popular as a tax-efficient vehicle in estate planning, and as a means of saving income tax. A FIC is usually an English company, which has family members as its shareholders. It can be set up as either a limited or unlimited company. Most however are unlimited, meaning that the need to file accounts at Companies House is avoided.
The Finance Act 2006 introduced changes to the tax regime for trusts, resulting in many turning to FICs to pass down family wealth. Most new trusts have an automatic 20% inheritance tax (IHT) charge for transfers over £325,000, and have 10-year IHT anniversary charges of up to 6%. You may therefore want to consider alternate vehicles to protect your wealth.
There are a number of benefits that a FIC can provide compared to alternate tax planning vehicles. Cash transferred into the FIC would be done so tax-free. The company would also pay low corporation tax at the rate of 19%. This is set to reduce to 18% by 2020. Additionally, the flexible structure of a FIC ensures that there is appropriate control and protection. The assets of the FIC are generally beyond the reach of the family court, and so assets can be protected in the event of a divorce.
Despite numerous benefits, where non-cash assets are transferred into the company (for example property or shares) capital gains tax may be incurred. The rate of this tax will be 20% based on the market value of assets transferred into the FIC at the date of transfer.
As companies are not all the same, we strongly recommend obtaining expert advice before establishing a FIC.