Family Investment Companies (FICS)

Increasingly, in recent years, high-net-worth individuals and wealthy families have turned to Family Investment Companies (FICs) as a useful way of managing succession planning and tax planning.

What is an FIC and how can it help me?

Family Investment Companies are often set up by wealthy individuals usually for the benefit of their children, grandchildren and wider family including themselves. Typically they are used to invest in stocks, shares and property. These asset holdings are structured to preserve control while achieving growth.

This aligns with broader wealth management and succession planning strategies designed to ensure long-term family prosperity.

They are commonly used to assist with Inheritance Tax (IHT) planning, allowing the founder to retain control over the assets, whilst removing value from their estate for IHT purposes. They have become a popular alternative to trusts, especially for entrepreneurial clients who will have been more familiar with the company structure.

With corporate rates of tax on investment income typically much lower than individual rates of income tax, there are further advantages to be made especially where investment income is continually reinvested to achieve growth. These advantages are particularly significant when considering lifetime gifts and inheritance tax strategies for future generations.

Profit Extraction Strategies in FICs

Family Investment Companies (FICs) offer flexible ways to extract profits, with two common strategies being dividends and loans.

• Dividends: Profits can be distributed as dividends to shareholders, offering a tax-efficient way to extract funds, though subject to dividend tax rates.
• Loans: Family members can borrow from the FIC, allowing access to funds without triggering income tax, provided the loan terms are properly structured.

Both profit extraction strategies can help manage wealth effectively, but it’s essential to consider the tax implications of each and maintain regulatory compliance at all times.

How are Family Investment Companies Funded?

Family Investment Companies are typically funded through the contribution of capital from family members, often in the form of share purchases or loans. These funds are then invested in assets such as property, stocks, or other investments. The company may also raise funds through external financing, but the majority of FICs are primarily funded by the family’s own capital, providing flexibility and control over wealth management.

When structured without proper advice, there is a risk that FICs could be inadvertently misused for tax evasion, which is why expert guidance and compliance with DOTAS regulations are crucial.

How can we help

Our specialist team can advise right through from inception to implementation and the management and running of Family Investment Companies.

We will work with you to identify the appropriate company structure, considering who in the family makes decisions, how the company is funded and make sure investment strategy is considered, whilst retaining maximum flexibility to ensure that medium and longer term family goals are met. This often includes advice on family governance, director responsibilities, and ensuring robust shareholder agreements are in place.

Our bespoke service allows us to help assist families in all shapes and sizes. We ensure that tax planning needs are considered at different ages and stages of life in a family unit.

Our business tax advisory team can also advise on:

We are also happy to talk to you about and advise on the following key areas, among others, where tax necessarily forms an important part of the decision-making process:

We would like to help you make confident decisions about the future and maximise relief available to you. We look forward to working with you.

Want to learn more about how we can help?

Contact us to arrange to speak with one of our specialists in London, Kent and Sussex.