A Family Investment Company (‘FIC’) is a limited liability company incorporated for the purpose of holding private wealth, providing for succession and UK Inheritance Tax planning.
It is a private company whose directors and shareholders are normally members of the same family. Designed and constructed correctly, a FIC can allow parents to retain control and access over the assets whilst the wider family members benefit from the growth of the assets transferred to the FIC.
The company would normally be organised where the parents in exchange for transferring assets to the newly established company in the form of a repayable loan would hold A class Voting shares that carry no economic rights. Children are given B class shares that carry no voting rights but have access to dividends and capital.
The effect of this is that the growth of the company accrues to the children, outside of the parent’s estate mitigating UK Inheritance Tax. The parents importantly retain full control over the company and have access and the flexibility to draw the loan they have made to the company which can act as an efficient way to fund future income requirements.
A FIC offers significant flexibility as to the assets that the company can hold in comparison to using a trust, whereas with using a trust the settlor may face certain restrictions as to the assets that can be settled.
This type of structure allows senior family members to transfer over strategic family assets indirectly into the hands of junior family members whilst mitigating the normal risks associated with this by limiting the control attaching to the FIC shares. The structure also offers a vehicle for junior family members to understand and actively be involved in the family asset base and wealth whilst senior family members retain control.
Constructed and governed correctly, A Family Investment Company can be a useful tool in the intergenerational transition of wealth and optimisation of UK Inheritance Tax.