Natasha
You might have heard about family investment companies, or FICs. We are increasingly being asked about these vehicles as part of succession planning. While trusts remain well-known succession planning vehicles, they are not always as tax efficient as they once were, leading many families to consider alternative structures such as FICs.

When considering a FIC, it is important to assess an individual’s personal circumstances to determine whether it is the right vehicle, as there may be other suitable options.

Paul
 At its core, a FIC is simply a company, often a UK-incorporated private limited company. Family members can be shareholders, while the senior generation often acts as directors managing the company. The company then owns a portfolio of assets that generate income or capital growth.

There are several common reasons why people establish FICs. Companies are familiar and well-understood structures, even if they are less commonly used in a family planning context. They are also highly flexible, allowing multiple share classes with different rights relating to income, capital and control for different family members.

FICs can also offer certain tax advantages.

Natasha
 One potential advantage arises at a personal level, often described as a “FIC for self”. In this scenario, investment returns can accumulate within the company at the corporate level. However, it is important to remember that value will ultimately need to be extracted from the company.

If value is extracted through dividends, a further layer of tax may arise. Many structures therefore incorporate loans, allowing funds to be repaid as loan repayments without additional tax. However, there are potential pitfalls, and professional advice should be sought before relying on this approach.

Rowan
FICs can also be effective estate planning tools. Inheritance tax planning often involves transferring valuable assets to younger generations earlier rather than later. A FIC can facilitate the transfer of value while allowing senior family members to retain control. This is commonly achieved by giving younger generations shares that carry most of the economic value while the senior generation retains voting rights and board control.

Paul
 FICs can be suitable for clients with significant cash or investment assets. They are generally not suitable for holding personal assets such as a family home. They are also not typically recommended for US clients because of various US tax considerations. A cost-benefit analysis should always be undertaken before establishing a FIC.

Rowan
If you would like to explore whether a FIC is appropriate for you or your family, or if you would like an existing FIC reviewed, further advice can be sought.