What are
Family Investment Companies?
A Family Investment Company (FIC) is a type of private limited company that is usually set up by parents or grandparents for the transfer of assets from themselves to their children or grandchildren.
The company is formed with different types of shares, with the voting shares usually staying with the elders and the shares that hold the capital value of the assets, passed to the children.
This structure allows for tax-efficient wealth accumulation and succession planning when it comes to the time to pass on your wealth to the next generation.
How does
Family Investment Company work?
Cash assets are typically placed into the FIC, and are then invested into either stock, land or property portfolios. Any growth on the assets can be paid out to family members as dividends or distributions. Through its Articles of Associations, the FIC can protect the family wealth from divorce or bloodline dilution. This is achieved by placing restrictions on share transfers to spouses and non-family members and allows you to keep control over the assets in the company by reserving all voting rights.
Tax Benefits of A Family Investment Company
This type of wealth transference and succession planning has been gaining popularity because of its tax advantages:
Corporation Tax Rates
Any profits arising from the investments are taxed at corporation tax rates, currently at 19% or 25% dependent on annual profits, rather than income or capital gains, which could save you over 25% on your taxes if set up correctly!
In addition, where the FIC holds an equity portfolio there may be no tax at all as dividend payments are often tax free from company to company. This can increase the return on the investment significantly.
“Any profits arising from the investments are taxed at corporation tax rates”
Income Tax
The investment is typically made by way of a loan, which can be repaid from profits tax free. However, when the funds have been repaid and being drawn by the shareholders as income, shareholders will be liable for personal income tax, which will be charged at their marginal rate of 20, 40 or 45% :
Personal & Dividend Tax Rates 2024/25
Tax band* | Personal Income Tax | Dividend Tax |
| Personal/Annual Allowance | Up to £12,570 @0 % | First £500 @0% |
| Basic rate | £12,571 to £50,270 @20% | From £501 to £50,270 @8.75% |
| Higher rate | £50,271 to £125,140 @40% | 33.75%* |
| Additional rate | over £125,140 @45% | 39.35%* |
The rates used are for the 2024/2025 tax year.
Property Portfolio – Rental Income
The rental profits in the company are taxed at preferential corporate rates and companies can deduct any loan interest from the rental income received to reduce annual profits and pay lower levels of Corporation Tax. Owning the same assets in your personal name is no longer a tax efficient way of holding them as your operating costs and interest paid on mortgages are restricted.
Capital Gains Tax
Any assets sold from within the FIC would be subject to Corporation Tax at 19 or 25% which is payable on annual profits each year, rather than Capital Gains Tax (CGT), currently charged at 20 or 24%, and payable within 60 days of disposal if held in your own name.
Inheritance Tax
Normally, an estate over £325,000 NET is subject to 40% Inheritance Tax.
4 Reasons to Use A Family Investment Company For Tax and Legacy Planning
- Take control
Retain control of assets which are placed in trust as potentially exempt transfers (PETs) and outside of your estate should the worst happen, saving on inheritance tax for your family. - Grow assets
Cash assets are typically placed into the FIC, and are then invested into either stock, land or property portfolios. Any growth on the assets can be paid out to family members as dividends or distributions. - Protect wealth
The FIC can protect the family wealth from divorce or bloodline dilution. This is achieved by placing restrictions on share transfers to spouses and non-family members and allows you to keep control over the assets in the company by reserving all voting rights. - Mitigate tax
0% Inheritance Tax on capital - Plan for your family’s future through the business
0% IHT for your beneficiaries - It will not cost your family to inherit what is theirs
0% Corporation Tax on investment profits - Retain more of your investment returns
7 Reasons to Use A Family Investment Company for Business Planning
- Offset mortgage interest
Claim relief for mortgage interest through the company - Separate trading business from investments
The structure will be simple to manage - Loan back to your trading company
Flexible cash flow when you need it most - Invest in property and other asset classes
Manage risk by diversifying your investments - No legal costs to protect future assets
Purchase new assets knowing they are tax sheltered - No probate process following death
Allows the handover of assets as per the trust - Protect and invest company wealth
Use retained profits that would otherwise be taxed to increase wealth
How much does it cost?
High-net-worth individuals are increasingly drawn to Family Investment Companies (FICs) as a favoured choice for tax and succession planning. The decision whether this vehicle is right for you will also depend on the structure, and its fees.
FIC establishment fee
The establishment fees of a Family Investment Company can vary, ranging from £4,500 to £21,000 or 0.6% of the asset value, whichever is greater.
A FIC with alphabet shares costs £4,500 plus VAT.
Companies can establish different share classes, commonly called "alphabet shares", such as A, B, C etc. This provides flexibility for declaring dividends to specific classes of shareholders as needed instead of declaring dividends for all shareholders.
A FIC with alphabet shares and freezer/growth shares would cost £11,000, plus VAT to establish.
Freezer shares are those held for future gifting. This is especially useful for freezing the value of your property portfolio for IHT purposes, where growth shares would be allocated to the discretionary trust. Any increase in the estate portfolio value will be outside of your estate, therefore, not subject to IHT.
A FIC with all the above and which has the growth shares settled in a Discretionary Trust would be £21,000 plus VAT.
The benefits of a FIC can be immediately apparent when it comes to Inheritance Tax. First of all, transferring cash or assets into a FIC is not subject to the initial Inheritance Tax charge of 20% if it exceeds the available nil rate band of £325,000. This makes a FIC the preferred option for families who want to transfer estates over £325,000 to their children whilst maintaining control of those funds.
Moreover, if you name yourself and your Spouse as Directors, and reserve all voting rights, but have no rights to the capital, then after seven years, the value of the money or property transferred will fall outside of your estate for inheritance tax purposes.
“Transferring cash or assets into a FIC is not subject to the initial Inheritance Tax charge of 20% if it exceeds the available nil rate band of £325,000”
How Soteria Trusts can help
HMRC and Pensions Regulator submissions – Soteria Trusts and the Trustee deal with the rules and regulations
Accounts and annual returns – Focus on running your business in the most efficient way
Minimal paperwork – Anything needing your attention will be prepared and ready for your sign-off
Compliance oversight – Provide comfort knowing you are within the rules
Strategy and planning – Working towards your goals and objectives from day 1
Preparation of documents – Focus on your business rather than admin
Ongoing support – Discuss your plans or concerns with us whenever you need to
Complementary Services: Stamp Duty Land Tax Refund, Will Writing, Lasting Powers of Attorney, Mortgage Placement, Property Investment Sourcing, and many more financial services through the expertise of the Business Class Group companies.
Soteria Trusts expertise
- Highly experienced in financial planning, tax & fiduciary services, business strategy
- We help establish and register your plan, trusts and private bank account
- Help you take control, protect and grow your wealth
- Helping business owners since 2007
- Operator of 3 registered pension schemes
- Competitive fee structure
Contact us for a personal consultation
