Keeping wealth and assets in the family
Haroon Qayum of LCF Law explains how Family Investment Companies (FIC) are used to preserve wealth for future generations.
When families and high-net-worth individuals are deciding how best to pass money, assets, property and other long-term investments to future generations, a common question comes up – “Is it possible to benefit from and protect assets now, while ensuring they stay in the family?”
For those who want to safeguard their wealth for their family, FICs are a useful tool in estate succession planning.
An FIC is a company that invests rather than trades, and the investments frequently consist of shares and equity portfolios or property.
One reason people might use an FIC is that assets and wealth are protected in the event of a divorce. This is because FICs are generally beyond the reach of family courts and its articles of association can restrict the transfer of shares to non-family members and spouses.
The control of an FIC rests with its directors, who determine what investments the company makes and the dividend it pays shareholders.
A major attraction is FICs are tax efficient. No lifetime inheritance tax (IHT) charges arise on transferring wealth and assets into an FIC. This is a key benefit over trusts, which are now subjected to a 20% initial IHT charge if the amount transferred into the trust exceeds the individual’s available nil rate band of £325,000.
Crucially, income and gains are taxed at the corporation tax rate in an FIC, which is significantly lower than income tax and capital gains tax rates on trusts.
Finally, FICs also offer a degree of privacy because it can be structured as an unlimited company meaning there is no requirement to file publicly available annual accounts with Companies House.
It’s important to seek professional legal and financial advice to maximise the benefits, avoid tax issues and structure it in a way that meets the specific requirements and objectives of the family, both now and in the future.