A Family Investment Company (FIC) continues to be a popular choice of an investment vehicle for many families. Many FICs have been set up and are many are expected to be set up in the future. But are they being set up and run effectively to offer the desired protection?
What is a FIC?
A FIC is a bespoke private company (in most cases limited) created for wealth accumulation and family succession planning. It is controlled and run by its directors (usually the parents) with family members (including children or grandchildren) owning the shares.
FICs have tailored Articles of Association which offer a flexible way to manage the investment of family wealth and the eventual transfer of its value to the next generation. They can also be more tax efficient when compared with a trust. It is their flexibility, control and protection of family wealth that have made them so popular.
Added to this, HMRC’s recent review of FICs decided that they form part of legitimate tax planning strategies. However, HMRC identified that the establishment and running of FICs needed careful planning, implementation and administration.
Is your FIC still fit for purpose?
Looking at the main reasons FICs continue to be set up, we recommend that they are reviewed periodically to address the most common issues:
- Share rights allocation
Do the existing classes of shares and their rights continue to fit the family’s circumstances or are any changes required? Some changes may have inheritance tax implications, so must be carefully considered.
- Funding
Is the way the FIC was funded need revisiting? Many FICs were funded with loans and their terms could benefit from a review.
- Management and control
Do the Articles and the Shareholders’ Agreement still provide the right level of control to the directors? Is now the right time to start involving the younger generation in the decision making?
- Tax efficiency
With the corporation tax rate most likely remaining at 19%, is FIC still the most tax efficient structure?
Are there any other opportunities to make the FIC more tax efficient, such as make the most use of management expenses and tax relief on loan interest?
- Extraction of value
Is there any benefit in holding off dividend distributions to post-April 2023, when it is expected that the dividend rates will be reduced to their 2021/2022 level?
How has the value been extracted from the company? Have any loans been made which could give rise to a tax charge?
Have there been any changes to the personal circumstances of the shareholders? Have any shareholders changed their tax residence, for example?
There are just some of the issues that should be taken into account when setting up new FICs and would merit a review of existing FICs. If you would like to discuss any of the above in more detail, please get in touch with a member of our Private Client team.
