Understanding Family Investment Companies for wealth planning

Roshni Valibhai and Clare Fleming look at the increasing popularity of Family Investment Companies (FICs), and why the structural flexibility and tax efficiency make them an attractive option when it comes to wealth planning.

What is an FIC?

Family trusts are a key feature of estate planning, a traditional means of passing on wealth to the next generation and potentially reducing inheritance tax on an estate.

A FIC is generally a private company whose shareholders are family members, including family trusts in some cases, but operated by a smaller number of directors.

Why should I consider setting up an FIC?

You could pay less tax – FICs can be most tax advantageous when maximising family wealth.

They’re flexible – A family investment company can invest in a wide range of assets, including property and shares. This means you can diversify your investment portfolio for higher returns.

You stay in control – You can use a family investment company to transfer value to the next generation while keeping control over the wealth. You can give cash to family members to allow them to subscribe for shares or set up a family trust with sufficient funds to purchase shares for the future protective benefit of selected family members.

Your assets are protected – Assets held by the family investment company are separate from shareholders’ personal assets. This can protect them against personal liabilities for business debts or legal claims.

They can bring you together – Family investment companies can give your family a structured way to share information about family wealth, to educate the next generation on how to manage and protect that wealth.

How do I set up a FIC?

A key feature of a successful FIC is well-drafted documentation which governs how it operates and its purpose.

The documentation is likely to include articles of association and a shareholder’s agreement. The documents will contain provisions which will govern amongst other things:

• Distribution of profits and capital value
• Decision making
• Director appointments and rules on what will happen if a director dies, loses capacity or experiences financial or relationship difficulty
• Share transfer provisions

The exact makeup of the provisions will depend on your individual and family circumstances.

Disclaimer: The material in this article only contains a brief outline on FICs and has been prepared for information purposes only. It should not be taken as constituting legal advice. We would strongly advise that you seek detailed advice before deciding which business structure to use and we can put you in touch with someone who can assist with tax matters.

Our highly experienced private client and corporate lawyers work closely together to ensure that all aspects of the FIC are created in a way that benefit you and your family, and so that it sits well with your estate and succession planning. For further information, please contact Harrison Drury on 01772 258321.