What Is A Family Investment Company And Is It Right For Me?

25th May 2021 | Accounting

If you’re someone who has spent years building wealth through hard work, accruing assets and increasing annual profits, it stands to reason that you’ll want to retain a portion of this as family wealth. This could be for a variety of reasons but very often it’s so that your children enjoy a substantial inheritance. So, if you’re seeking to pass on assets, then you may want to consider a Family Investment Company (FIC, or FICo). The popularity of Family Investment Companies has increased greatly and, here at Williamson & Croft, we have helped countless families by setting them up and ensuring they can enjoy the benefits from day one. The benefits and reasons why FICs might be set up, from tax planning to transfer of assets, will be explained in this blog.

If you want to learn more about the setup of a FICo, or want advice about tax rules and how to structure your investments in property, do not hesitate to get in touch with us. Our team here at Williamson & Croft have decades of collective experience in the tax and accountancy industry, including succession planning. Based in Liverpool and Manchester, we can help families and businesses across the northwest in areas such as Altrincham, St Helens, and Woolton.

Email us at info@williamsoncroft.co.uk or call us on 0161 399 0121 (if you live in Manchester) or 0151 303 3112 (if you’re Liverpool based).

What Is A Family Investment Company (FICo)?

A Family Investment Company is simply a private company that invests rather than trades. They have bespoke articles of association and the shareholding tends to be made up of different share classes which can be issued to different family members. The investment company structure usually works by having the parents as the board of directors, with the children and/or family members owning the shares. Every decision made in the FIC, including the day-to-day control, and investment decisions, are in the hands of the directors.

This means that the directors have control over assets and distribution of profits and can transfer value to family members. They can transfer this at any time, to any of the individual shareholders in the company, but will continue to retain a portion of control over the assets that have been gifted to people.

For context, the rise in popularity of Family Investment Companies was due to the strict rules that were put on a typical family trust by former Prime Minister Gordon Brown. His announcement in 2006 was that all lifetime settlements would be charged with 20% inheritance tax charges if the amount transferred was higher than the nil rate band, which is £325,000.

This means that, even if you just transferred the £325,000 limit, the tax rates would mean that £65,000 of that would become payable as tax. This is not an insubstantial amount and one of the many reasons why family companies such as FICos are an appealing option for inheritance tax planning, and other tax purposes.

What are the main benefits of a Family Investment Company?

  • You can keep wealth and key assets in your family and pass these on to children and loved ones for generations.
  • Profits are taxed at UK corporate tax rates of 19%, compared to personal tax rates of up to 45%.
  • They are particularly useful for property investment, where annual profits can be distributed to parents or grandparents whilst capital growth can be allocated to children or grandchildren providing a significant Inheritance Tax Benefit.
  • This safer structure allows you to carry out the payment of dividends while letting go of beneficial ownership.
  • You can enjoy inheritance tax reliefs, allowing you to keep asset values high.
  • Dividends up to £14,500 can be paid to any shareholder over the age of 18 and could be free of income tax depending on their other income.
  • They are composed of an incredibly simple structure, especially when compared to a trust.

How To Set Up A Family Investment Company

Setting one up is extremely easy when you work with Williamson & Croft. These kinds of structures work best for people with substantial assets and money to invest (at least £500k). Also, they are best for people who wish to keep the money within the FICo and allow it to grow, as opposed to taking money out regularly.

Our team can work through the process, and the pros and cons so that you have all the information in front of you. It’s also important to note that our team will wait for your decision before taking any action.

If you think a FICo is for you, the first step would be to undertake a consultation with Williamson & Croft, once we have a full understanding of your goals & motives we’ll provide a steps plan and tax analysis paper that is bespoke to your family’s situation. We would then draw on our years of experience to create an easy-to-understand structure before incorporating the company at Companies House for you. One of the many features of FICs is that they can be tailored to you. We can easily configure it to help you with the appointment of directors, the transfers of shares, and the distribution of annual profits.

We’ll guide you through the whole process from start to finish, we work closely with other professional advisors such as lawyers who can produce the articles of association, board minutes and resolutions, and assist with any trust set-ups. Finally, we’ll help with the donor’s money transfer so that you have the cash in the company as a type of loan. At the end of this process, we can also act as your accountant for years to come. As directors of the company, you’ll have a responsibility to file annual accounts and corporation tax returns.

If you have any questions, why not check out our FAQ page? Similarly, if there are certain accounting terms that you’ve come across, but don’t know what they mean, head over to our Glossary page which is packed with definitions.

Tax Benefits Of An FIC Structure

Sometimes overlooked, but, as well as being an effective way to keep wealth in your family, FICs are great for dealing with tax issues. Instead of paying the top rate of personal income tax – which is, at time of writing, 45% – you’d only pay Corporation Tax (because a FICo is classed as a company) which currently stands at 19%.

To get an idea of how much you could save, here’s a rough example. Let’s say you had £250,000 to work with. The top rate of income tax would deduct nearly half of that (£112,500) from your total amount. Whereas, with the 19% Corporation Tax, just £47,500 would be taxed. That’s a total overall saving of £65,000.

And, in most cases, you wouldn’t be subject to Corporation Tax on a wide variety of dividends. You can also deduct management and business expenses for Corporate Tax purposes.

Interested In The Corporate Structure? Get In Touch

Here at Williamson & Croft, we’re passionate about helping families keep hard-earned assets. We truly believe our refined Family Investment Company process is one of the best in the country and would be delighted to spend some time talking through the steps we take, and how they help your family.

Being based in Liverpool and Manchester allows us to help people in areas such as SaleChester, and Warrington. So, no matter where you are, feel free to get in touch. You can either email us at info@williamsoncroft.co.uk or give our team a call on 0161 399 0121 (if you live in Manchester) or 0151 303 3112 (if you’re Liverpool based).

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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