Family Investment Companies
When looking to structure your wealth for your lifetime and future generations, there are various options to consider. One method is the use of a Family Investment Company (FIC).
Setting up a Family Investment Company
Setting up a Family Investment Company (FIC) has become a popular solution for high-net-worth individuals in recent years because it offers the ability to generate a tax efficient income and start inheritance tax planning.
A FIC is a bespoke investment vehicle structured as a private company, whose shareholders and directors are family members. FICs benefit from lower tax rates on capital gains on non-residential property, dividends and other income than personal holdings, as well as the ability to claim tax relief for fees and claim losses against other income.
A FIC can invest in any asset class, including cash, rental properties, investments and share portfolios. It is an attractive alternative to other investment structures, such as investment bonds, and should be viewed as a long-term investment vehicle.
FICs often work well for investors who have sold a business, meaning they are cash rich but no longer have a steady stream of income.
Benefits of using a Family Investment Company;
- All your trusted advisers working together under one roof
- Tailored and actively managed portfolios
- Flexibility and protection
- Total control over investment decisions
- Familiarity of corporate structure
- No upfront inheritance tax charges
- Potential tool for inheritance tax planning
- Long term tax efficient accumulation of profits
- Control over distribution of profits to maximise efficiency
Our approach to Family Investment Companies
Our investment approach for FICs is very similar to that of bespoke portfolios, tweaked to optimise for the investment structure. FIC portfolios have a slightly higher exposure to the UK and are income orientated because most dividends received by a UK company are exempt from corporation tax and the UK stock market has a strong track record for dividends.
We take a top-down sector-based approach, starting with the benchmark weight per sector before overweighting or underweighting sectors based on the macro-environment.
A multi-factor process is used to select best in class stocks within sectors, combining quality, growth and value factors. There is a focus on profit generation and strong, stable cash conversion. Finally, a qualitative overlay is employed to assess the quality of company management.
How does a Family Investment Company work?
An individual or individuals subscribe for shares in a new company and directors are appointed. Shares can be gifted to or subscribed for by other family members/family trusts. A gift of shares would be a potentially exempt transfer for IHT, meaning the value of the gift would fall out of the donor’s estate for IHT purposes if they survived the gift by at least seven years.
The majority of the funds are provided by shareholders transferring assets or lending cash. The FIC owes the shareholder the value of the assets transferred/loaned. After taking the appropriate investment advice, the directors invest the funds.
Frequently Asked Questions
One of the main benefits of using a FIC is that they generally pay tax at a lower rate on investment returns than personal holdings. A FIC will pay corporation tax at 25%, which is significantly lower than the top rate of income tax (currently 45%, or 48% for Scottish taxpayers). Most dividends received by a UK company (including foreign dividends) are exempt from corporation tax, whereas additional rate taxpayers pay income tax at 39.35% on dividends over the dividend allowance.
Capital gains realised by a FIC are chargeable to corporation tax at 25%, which is slightly higher than the current main rate of capital gains tax of 24% that would be payable by an individual. However, unlike personal holdings, FICs can claim tax relief for fees and claim losses against other income.
Please note:
This information is for educational purposes only and should not be used to make a decision about the suitability or otherwise of a specific investment strategy. No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact a professional adviser. The value of investments and any income from them can fall, as well as rise, and you may get back less than you invested. Your capital is therefore always at risk. It should be noted that stock market investing is intended for the longer term.
The information contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
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