Family Investment Companies

Anyone who would like to use a company structure as a means of holding cash or investment assets for the benefit of their family. 

FICs tend to be popular with high-net-worth individuals and wealthy families that have excess capital available to invest.  Often, they will be used by entrepreneurs’ and business owners who are familiar with how companies operate. 

FICs are well-suited for long-term, multi-generational tax planning purposes, and can help with passing assets on to the next generation tax efficiently.

In the right circumstances, there are many benefits of having a FIC but typically the key main advantages as follows:

• Tax efficiency: One of the main benefits of making investments through a FIC is that the FIC will generally pay tax at a lower rate on its investment returns. 

The company will pay corporation tax at 25%, as the small profits rate of 19% does not apply to ‘close investment holding companies’ which by definition will include many FICs.  This is significantly lower than the top rates of income tax (currently 45%, or 48% for Scottish taxpayers) that would otherwise be paid if investments were made in a personal capacity.

In addition to the above, most dividends received by a UK company are exempt from corporation tax, which further enhances the tax saving where investment portfolios are held within the FIC. 

• Retention of control: Founders (such as parents or grandparents) can structure the FIC in such a way that they retain control over the assets and decision making, even while gifting economic value to younger generations.
• Estate planning: Gifting shares to younger family members moves future asset appreciation outside the founders' estate, helping to reduce future IHT. Founder loans can also be gifted to family members where appropriate to further mitigate IHT exposure. 

FICs are used as an alternative to, and generally in conjunction with, traditional Trust arrangements. 

One of the advantages of a FIC is that there is no immediate tax consequence of adding large cash sums to a FIC, whereas Trusts are usually limited to a person’s available nil rate band (currently up to £325k), otherwise an immediate (20%) IHT charge may be due.

It is not uncommon to see a family Trust being one of the shareholders in a FIC.

With careful drafting, a FIC can be structured in such a way that enables the founder to retain ultimate control, while also protecting the family wealth in a similar vein to a Trust.

FICs are commonly used by families as a means of reducing any exposure to IHT. 

If structured correctly, shares can be transferred to younger family members, and this shifts any future growth value outside of the founder’s estate for IHT purposes, but at the same time enabling the founders to keep control over the FIC.

It is important to bear in mind that any value retained by the founder remains part of their estate – whether that be their own shares in the FIC, or the initial founder’s loan. The founders’ loan can itself be reduced over time, for example by repayment and spending, or by gifting (assigning) parts of the loan to other family members as appropriate, but any such gift would be subject to the usual seven-year gifting rules. 

The FIC is most effective when it is set up early, so the seven-year gift periods and/or the growth-share effect have time to work.

It is possible to establish a FIC outside of the UK; however, care should be taken to understand the tax implications in both the UK and the offshore jurisdictions where appropriate. 

In our experience, offshore FICs are typically beneficial for those families who do not anticipate remaining tax resident in the UK in the long term. 

Where appropriate, we work with our colleagues in the Crowe Global network to advise on multi-jurisdictional tax planning matters.