A Family Investment Company ("FIC") is a company in which the shareholders are family members, often from different generations. FIC's enable families to pass UK assets out of their individual estates for inheritance tax purposes, whilst retaining control or passing control to professional directors to manage the company. FIC's also provide asset protection. They are becoming increasingly popular with high net-worth families.
FIC's are private companies which are registered and have traditionally been managed and controlled in the UK. A FIC is non-trading and subject to UK taxes.
Why Use an FIC?
In some circumstances FIC's are becoming an attractive alternative to a Trust and operate in a similar manner.
FIC's are increasingly being used for succession and wealth planning.
Benefits of an FIC
- The transfer of available cash into an FIC is tax-free;
- No immediate charge to UK Inheritance Tax on the transfer of company shares to an individual. This will be treated as a potentially exempt transfer (the transferee must survive seven years after the transfer);
- An element of control can be retained over the company;
- UK tax, at the current rate of 19% (moving to 17% as of April 2020), on the profit generated by the company;
- Shareholders are only taxed on income received from the company;
- Profits retained in the company do not suffer further tax;
- Different share classes can be issued by the company. This means that some individuals may be entitled to income, some to gains etc.
Why Consider Using a Guernsey or Isle of Man Company for a FIC?
Families are becoming more mobile and international. Whilst the UK may be the current jurisdiction of residence for the family, this may change in the future and/or with younger generations of the family. An offshore company may be more suitable for the larger or more International family.
A company in Guernsey or the Isle of Man can provide confidentiality to the family, as the relevant beneficial ownership register is private and there are no requirements to file financial statements.
An offshore FIC can become dual resident i.e. incorporated and registered in Guernsey, for example, but tax resident in the UK. If there is no reason for the FIC to be UK tax resident in the future, the company can be deregistered from paying UK taxes (please note exit charges will apply) and become tax resident in Guernsey, or elsewhere. This option provides flexibility for future generations.
If a family has an existing UK FIC, there may be an option to transfer the assets of the FIC to a company located elsewhere, to provide flexibility for the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.