We provide a summary of when a Family Investment Company could be considered as part of your succession planning.
What is a Family Investment Company?
A limited company that is formed with specific share classes to separate the income and capital value of the company.
The family members are the shareholders of the company, and could also be directors if they wished.
If the family members were also directors, consideration would need to be given to their tax residence and how this would affect the tax residence of the company.
What are the different classes of shares and how does this work?
Different classes of shares can be created; with non-voting shares gifted to children in order to hand wealth down the generations until such time as they are given added responsibility.
For example, parents will typically own the share class that entitles them to the income and voting rights, so they are able to benefit from the income and run the company during their lifetime; whilst the younger generation owns the non-voting share class that entitles them to the capital value of the company.
Wouldn’t the gifting of shares from parent to child be taxable in the UK?
The gifting of shares is a ‘Potentially Exempt Transfer’ (PET) which enables a UK domiciled individual to make gifts of unlimited value that are exempt from tax; provided that the donor survives for seven years from the date of making the gift.
Why would a FIC be used instead of a Trust?
Depending on an individual’s personal tax position, it is sometimes not efficient or advisable to set up a Trust.
For example, a long-term UK resident individual would incur significant inheritance tax charges in the UK if they settled their assets into trust. This status change is effective 6 April 2025 and applies to those who have been UK tax resident for 10 out of the last 20 years. Setting up a company does not incur such charges because the individual retains legal ownership of the assets.
Example:
The contents of this document are based upon our current understanding of HMRC’s tax practice as November 2024 which is subject to change.
The suitability of the arrangement will depend upon the circumstances of the individual – we therefore recommend obtaining UK tax advice to confirm the personal tax position of the UK resident shareholders.
Please contact Jean-Luc Piazza for more information about Family investment Companies and to discuss whether this could be an appropriate arrangement for your particular circumstances.
