A Family Investment Company (FIC) is a private company whose shareholders are usually members of the same family. This structure is often used to protect family assets and wealth for future generations and can serve as an alternative to a trust.
How Does an FIC Work?
Typically the founder contributes cash or other assets, such as property, to the company in exchange for shares or loans. However transferring property into an FIC may have Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) implications.
The founder may then gift shares in the company to family members often issuing shares with distinct rights. For example, the founder might hold shares with voting rights but no dividend rights, while family members receive shares with dividend rights but no voting rights. This structure allows the founder to retain control over the company while distributing income to family members.
Why Choose an FIC Over a Trust?
FICs are often preferred to trusts for two main reasons:
Inheritance Tax (IHT) Efficiency: transferring property to a trust can trigger a lifetime IHT charge. FICs should avoid this upfront charge.
No Periodic or Exit Charges: trusts are subject to periodic and exit tax charges, whereas these do not apply to FICs.
Shares gifted from a FIC to family members are treated as Potentially Exempt Transfers (PETs). Under the seven-year rule if the founder survives seven years after making the gift the transfer becomes exempt from IHT.
Tax Implications
Inheritance Tax (IHT)
Shares in an FIC remain free from IHT if the founder survives the seven-year PET period.
Corporation Tax
FICs are taxed like any other UK limited company, paying corporation tax on profits from investment activities. The current UK corporation tax rates are:
19% for profits up to £50,000.
26.5% for profits from £50,000 o £250,000.
25% for profits over £250,000.
Capital Gains Tax (CGT)
FICs pay corporation tax on any capital gains. Indexation allowance may apply for assets purchased before December 2017. If the company disposes of a trading subsidiary it may benefit from the Substantial Shareholding Exemption.
Dividend Income
Dividends received by an FIC from another company, such as a trading subsidiary, are tax-exempt. However individuals receiving dividends from the FIC are taxed at their personal dividend tax rates:
8.75%
33.75%
39.35%
Reporting Requirements
As a UK company an FIC must meet the same reporting requirements as any other UK limited company. This includes filing annual accounts with Companies House and submitting a corporation tax return and computations to HMRC annually.
Speak to an Expert
Are you considering whether an FIC might be the right structure to retain and distribute wealth within your family in a tax-efficient manner? Our team is here to help. Contact us for an informal chat, and let us guide you through the process.
Authored by: London Tax Team
コメント