Protecting your family legacy

Protecting your family legacy

The Family Investment Company (‘FIC’) has become a popular choice for high net worth individuals as a useful tool for tax and family wealth planning with a flexibility that is hard to beat.

That infamous saying about nothing being certain apart from death and taxes serves to remind us that the longest relationship many of us will have in our lives is with HMRC, and for some, it will not be a marriage made in heaven. We all have a responsibility to make sure that while we are abiding by the rules, we are also being as tax efficient as possible and this is never more important than when you are assessing your Inheritance Tax (‘IHT’) position.

I am increasingly being asked by clients about the benefits of setting up a family investment company and it is indeed a useful tool to have in the armoury to protect your family legacy and make sure it passes from generation to generation.

Family estate planning

A family investment company is essentially a private limited company that invests as opposed to trades, where the shareholders are family members and often family trusts, with an objective to be used for family estate planning purposes. Very often, it is set up when someone comes into a significant sum of money, perhaps from the sale of a business.

A familiar experience

Of course, you don’t have to wait until you’ve sold your company to start a FIC. Sometimes people set it up while they've got their business and they're taking out large dividends or a large salary. The FIC runs alongside the current business and is ready to grow over time when they can put more money into it later down the line.

One of the attractive things about FICs is that business owners understand them. They’ve dealt with company shares and they understand the corporate structure. It's like any other company that they've been running, just with investments, the only difference being that it's not a trading company. In many ways they are less intimidating than the idea of a trust, as well as offering some tax advantages, such as not having 10 year charges. 

An IHT win

The company articles will be bespoke to the family and can provide that any increase in value of the investments can be apportioned as you see fit between you, your children and even grandchildren.  An added benefit of a FIC compared to a trust is that you can utilise various ways to transfer the cash into a family investment company meaning the cash is not subject to the initial inheritance tax charge of 20% if it exceeds the available nil rate of £325,000.

Act now, relax later

As long as you get the right tax and legal support, FICs can be set up completely bespoke and tax efficiently. Be warned though. HMRC have reviewed IHT generally, and with the current cost of living crisis, the treasury may be looking at other ways to increase the tax intake. If you are considering moving wealth to the next generation it is better done sooner rather than later.

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