- Protecting family wealth: is now the perfect time to move your investments into a Family Investment Company (FIC)?
Protecting family wealth: is now the perfect time to move your investments into a Family Investment Company (FIC)?
Protecting family wealth: is now the perfect time to move your investments into a Family Investment Company (FIC)?24th April 2020 - Published by Kuits tax & estate planning team
Many families are now holding their investments in what are commonly known as Family Investment Companies (FICs) as a way of protecting assets for future generations.
FICs can hold most assets, but the most common are:
Having your investments in a FIC enables you to have a high level of flexibility in relation to the rights and entitlements each family member has in respect of your investments, and crucially allows you to hand over some value to children (or other family members) or trusts on their behalf, whilst maintaining control over their access to them and also allowing you to keep some benefit as well.
For example, each family member can have a different class of shares (called alphabet shares), enabling them to have different proportions of voting rights (or no voting rights at all) compared to their entitlements to dividends or capital returns, while each shareholder can receive dividends or capital returns at the same time or to the exclusion of others on a relatively flexible basis.
Another key benefit of a FIC is that it can also be set up to keep the investments within the family by including “bloodline” restrictions, whereby the shares can only be held by you and your lineal descendants which offers a level of protection against the loss of assets on the divorce of any family member.
As well as allowing for the passing of wealth to the family in a controlled and structured way, tailored to your own requirements, FICs can be advantageous from a tax perspective on the basis that they pay corporation tax on income (except dividends from other companies, which are generally tax free) and gains and personal tax is only paid when dividends are paid. In addition, many FICs are funded by way of loans, which can be repaid to create a tax-free income stream.
A barrier for many families in using a FIC has been existing assets standing at high gains, meaning any benefits of using a FIC are outweighed of the cost of moving existing assets into it. However, with stock markets significantly below their peak and other asset values similarly depressed, now might be a good time to consider the establishment of a FIC as a family investment vehicle.
Depressed values will lead to a low, or even no, Capital Gains Tax charge when existing investments portfolios are transferred into the FIC (usually selling them in exchange for a loan to the company, which as stated can be repaid tax free), which could make the present time a particularly attractive period to set up a FIC.
If you would like to discuss FICs with an experienced member of our tax team, please contact Paul Bricknell on 0161 838 7860 or email firstname.lastname@example.org.