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Family investment companies (FICs) have become an increasingly popular vehicle for wealth structuring and succession planning, particularly among high-net-worth individuals and families seeking greater control and flexibility over their assets.
While trusts have long been the traditional route for passing on wealth, FICs offer a compelling alternative that can be tailored to meet specific family and financial objectives.
What is a FIC?
At their core, FICs are private limited companies established to hold and manage family wealth. Typically, family members become shareholders (often with different generations holding different classes of share), and the company's articles of association and shareholder agreements are drafted to reflect the family's governance preferences, control mechanisms, and succession plans. This structure allows for clear delineation of ownership, voting rights, and access to income or capital, which can be adjusted by share class over time as family circumstances evolve.
What are the benefits of establishing a FIC?
Control
One of the key advantages of a FIC is the ability to retain control. Unlike trusts, where trustees hold legal title and make decisions on behalf of beneficiaries, a FIC allows senior and/or skilled family members to be actively involved in managing the company and its investments. This can be particularly attractive for individuals who wish to oversee strategic decisions or maintain influence over how wealth is deployed.
Apportioning growth and potential tax savings
While FICs are subject to corporation tax on income and gains, this rate is often lower than personal income tax rates, and profits can be retained and reinvested, allowing for compound growth over time.
FICs are often set up with 'alphabet shares' to allow for different generations of the family to hold different classes of share, which can allow for future growth to be directed to the holders of the 'junior' shares, thereby effectively 'freezing' the value of the 'senior' share classes.
Furthermore, dividend payments can be managed by generation to ensure that they are made in the most tax-efficient manner possible.
FICs can therefore be a useful way of passing wealth to future generations without incurring inheritance tax charges, but must also be carefully structured to ensure that they do not fall foul of HMRC regulations.
Governance flexibility
FICs also offer transparency and flexibility in governance. Shareholder agreements can be used to set out rules around decision-making, share transfers, and dispute resolution between family members.
Moreover, the corporate structure allows for easier integration with other entities, such as family offices or investment vehicles, and can be adapted to accommodate future changes in tax legislation or family dynamics.
If 'alphabet shares' are adopted, voting control can be retained by the 'senior' share classes, thereby ensuring that whilst capital growth is directed towards junior shareholders, control is maintained by the appropriate family members.
What else should I consider?
Establishing a FIC requires careful legal and tax planning to ensure that the structure is appropriate and compliant. Considerations include the treatment of income and gains, the impact of anti-avoidance rules, and the interaction with other estate planning tools.
It is also essential to ensure that the company's governance documents are robust and reflect the family's intentions clearly to avoid costly and unwanted disputes.
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.
