A Family Investment Company (FIC) is a private company whose shareholders are family members. It serves as an effective vehicle for families to manage their shared wealth e.g., allowing parents to pass wealth onto their children while retaining control over the assets. FICs can be structured in various ways, and can hold a variety of assets such as cash, property, and shares in other companies. They are often used as part of a family’s wealth management and succession planning strategy. FICs are popular among high net worth families, particularly in the UK.
A FIC is set up by family members who become its shareholders. The FIC can be structured with different classes of shares that give different rights, allowing the founder to maintain control over the assets while providing benefits to other family members. Profits generated by the FIC’s investments are taxed at corporation tax rates, which can be lower than personal tax rates, and these profits can be distributed to shareholders as dividends.
FICs offer several tax advantages. Firstly, the corporation tax rate, which applies to the profits generated by the FIC’s investments, is typically lower than the income tax rate that would apply if the family members had invested the assets personally. Secondly, if the shares in the FIC are gifted to other family members, these gifts can potentially be exempt from inheritance tax (PET) if the donor survives for seven years after making the gift. Dividends paid to shareholders may be taxed at lower rates than other forms of income.
Setting up a FIC involves several steps. Firstly, you need to decide who the shareholders will be and what type of shares they will hold (though shareholders and their rights can change in the future). Then, you need to incorporate the company, which involves registering it with the appropriate authority (such as Companies House in the UK) and creating the company’s articles of association. You also need to open a bank account for the FIC, transfer assets to it, and appoint directors to manage the company and distribute shares where required.
The costs of setting up a FIC can vary, depending on factors such as the complexity of the structure and the nature of the assets being transferred into it. Costs may include professional fees for legal and tax advice, registration fees, and the costs of drafting the company’s articles of association. The ongoing costs of running a FIC can also vary, but may include accounting, investment management and audit fees, director’s fees, and administrative expenses.
Yes, a FIC can own property, and in fact, this is a common use for FICs. The FIC can either buy property directly or it can own shares in a company that owns property. Owning property through a FIC can have significant tax advantages, and it can also provide a way to pass property onto future generations while retaining control over it.
Yes, a FIC can be used for philanthropic purposes. For example, the FIC could donate some of its profits to charity, or it could own shares in a charitable company. A FIC can provide a structured and tax-efficient way for a family to engage in philanthropy.
Like any investment, a FIC carries risks. The value of the assets held by the FIC can go down as well as up. There’s also a risk that the tax rules could change in the future, which could impact the tax benefits of the FIC. There could also be family disputes over the management or distribution of the FIC’s assets. It’s important to take professional advice when setting up and managing a FIC to mitigate these risks.
A FIC and a trust can both be used for family wealth management and succession planning, but there are key differences. With a trust, the assets are legally owned by the trustees, who manage them for the benefit of the beneficiaries. With a FIC, the assets are owned by the company, and the shareholders have rights to the assets based on their shareholdings. Also, the tax treatment of FICs and trusts is different. Trusts are subject to their own specific tax regime, while FICs are taxed as companies.
Yes, a FIC can be wound up or dissolved if the shareholders decide that it’s no longer needed or if it becomes insolvent. The process for winding up a FIC involves paying off any creditors, distributing the remaining assets to the shareholders, and then applying to the appropriate authority to have the company dissolved.