Family Investment Companies (FIC)
An FIC is a private limited company typically set up by family members to manage and protect family wealth, often for long-term planning purposes and to hold assets. The appointed ‘Company Director’ (often a parent within a family) retains control over the funds and assets, reinvesting to accumulate and protect wealth for future generations.
How is it different to a normal Limited company?
A family investment company is no different to a normal Ltd company. The term FIC is used because the company is used by families to manage their investments. As an investment vehicle, it can invest in stocks, bonds, property and other financial instruments in a tax efficient manner. It is possible to run an FIC as an unincorporated company, however using a Ltd company structure can provide additional benefits and flexibility for families to take advantage of.
Why are they used?
They were developed as a tool for families to manage succession and undertake estate planning. Additionally they are tax efficient, as they pay corporation tax on profits, which is often lower than personal tax rates. There is also a level of flexibility in terms of control, as there are different types of shares that can be gifted to different shareholders, additionally there is flexibility in voting rights within the shareholders. This enables the senior family members to retain control whilst gradually passing wealth to the next generation.
Benefits of an FIC
- Key to estate planning
They enable Directors to keep control over their family wealth within their own lifetime, rather than just leaving it as inheritance
They also enable the family to invest capital wisely as a group, meaning the individual members can enjoy the rewards with no responsibility for the investment decisions
The capital held in the company is not easily realisable, keeping the wealth inside the family and preserving it for future generations - Tax efficient
Usually corporation tax is lower than personal tax
Parents can gift shares to their children, potential reducing the size of their estate
Income through dividends can be distributed to shareholders depending on their tax bracket - Flexibility and control
Even though other family members can be shareholders, the ‘founder’ of the business remains in control
Through different types of shares, you can achieve differing levels of control within a family, taking into account specific dynamics - Asset protection
By adding family assets into the FIC, it means there could be an additional level of protection against external claims
It can plan for blood-line succession, keeping assets within a family structure. For example, if there is a divorce, this can be reflected in the structure of the FIC - Succession planning
It is a useful addition to succession planning tools
Drawbacks
- Complex to set up
To correctly set up an FIC it involves input from legal and accountancy professionals. Additionally to ensure tax compliance, an FIC must comply with corporate tax regulations, which need expert oversight - Compliance
The company must adhere to corporate governance standards, including filing annual returns and maintaining financial records - Double taxation
If the FIC is set up to provide dividends, then these can be subject to both corporation tax AND dividend tax when paid to the shareholders
How they differ from Discretionary Trusts
FICs are seen as an alternative to Discretionary Trusts, so it’s a useful tool to compare the two.
Discretionary Trusts are preferable for:
- Smaller funds
- Holding assets that may be used by beneficiaries
- Holding assets for beneficiaries not yet born
FICs are preferable for:
- Holding large capital sums
- Long-term investments
- Producing income for shareholders
A tool for succession planning?
Family Investment Companies have become increasingly popular as an alternative to traditional family trusts, particularly for families seeking flexibility and control in managing their wealth and can be a powerful tool as part of your tax plan.
If you are interested in how a Family Investment Trust could work for you, contact our Trust Planning Team at OCG Legal at privateclient@ocglegal.co.uk
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