What is a family investment company (FIC)?
A family investment company (FIC) is a private limited company whose shareholders are usually made up of members of the same family. FICs are becoming increasingly popular as bespoke vehicles for family tax and succession planning. The flexibility and favourable tax rules which can be secured by setting up such a structure make it an attractive option for high net worth individuals.
Often such a structure will particularly appeal to individuals coming from a corporate or entrepreneurial background who are well versed in dealing with companies.
FICs can be set up in a bespoke manner to provide for the needs of a family. Broadly speaking, they will be set up by parents or grandparents, who will often choose to retain control of the management of the structure. The children and grandchildren will hold shares and receive an economic benefit from the accumulated family wealth invested, in a tax efficient manner.
FICs are often viewed as an alternative to the more traditional family trust. Our experience is that the two entities can work well together, with a family trust being a shareholder of the FIC.
Flexibility of a FIC
The FIC can initially be funded by way of a loan from the parents/grandparents. The loans can be assigned to children or grandchildren if and when desired. This provides the family members with the potential of withdrawing cash from the FIC, if required, tax free.
Different branches of the family can be issued with separate share classes. This allows income to be distributed to the different family branches separately to best meet their own particular requirements.
Tax position of a FIC
Generally speaking, the income and gains of the FIC are subject to corporation tax at a rate of 19% (reducing to 17% in April 2020). Dividends received by the FIC are exempt from corporation tax.
Shareholders are subject to income tax on receipt of dividends from the FIC.
Is a FIC right for me?
A FIC can be an effective vehicle for family tax and succession planning in a number of circumstances and it can be tailored to meet the long-term requirements of you and your family. The following should be borne in mind if you are considering setting up a FIC:
- There are ongoing administrative and compliance costs associated with running a FIC.
- A FIC is most effective from a tax planning perspective where income does not require to be withdrawn by the shareholders on a regular basis, allowing income to accumulate and benefit from compounding.
- There are tax implications associated with winding up a FIC and so they are best viewed as relatively long-term planning vehicles for successive generations.
Further FIC advice
This note is intended as a brief summary of family investment companies. No responsibility can be accepted for any action taken in reliance on this note and specialist advice should be taken in every case. Turcan Connell would be happy to provide such advice.