Family Investment Companies

Understanding Family Investment Companies: A Smart Wealth Management Solution for Business Owners?

For business owners seeking to preserve and grow their wealth while planning for the future, a Family Investment Company (FIC) offers an effective and flexible solution. FICs are becoming an increasingly popular alternative to traditional trusts, providing significant advantages in terms of tax efficiency, control, and succession planning.

What is a Family Investment Company?

A Family Investment Company is a private limited company designed to hold and manage family wealth. Business owners can establish an FIC to invest in assets such as property, stocks, and other financial instruments. The company’s structure allows family members to own shares, while the founders retain control over decision-making.

Key Benefits of a Family Investment Company

Tax Efficiency - FICs are subject to corporation tax on their profits, which is generally lower than the personal income tax rates. Additionally, dividends received from investments are often exempt from tax, further enhancing the tax efficiency of the structure. For those with property as investment assets there are further tax reliefs from mortgage investment which is greater than owning as an individual.

Wealth Preservation - By establishing an FIC, business owners can ensure that family wealth remains protected and within the family. The use of different share classes allows for separation of control from financial benefits, safeguarding assets from external threats such as divorce or creditor claims.

Control and Flexibility - Founders can issue various classes of shares, granting voting rights to themselves while allocating dividend rights to family members. This ensures continued control over major decisions without compromising the financial benefits for the family.

Succession Planning - FICs provide a straightforward mechanism for transferring wealth to the next generation. By gifting shares rather than the underlying assets, founders can mitigate inheritance tax liabilities while maintaining oversight. Again this works particularly well with property asset investment and issuing shares is much easier and flexible.

Investment Growth - Profits generated within the FIC can be reinvested, allowing for the compounding of wealth over time. The flexibility of an FIC makes it suitable for long-term investment strategies.

Is an FIC Right for You?

Family Investment Companies are particularly beneficial for business owners with significant assets looking to manage their family wealth efficiently. However, establishing and maintaining an FIC requires careful planning and ongoing management. Consultation is advised to ensure the structure aligns with your financial goals and is effected correctly, with the correct tax treatment of transactions.

At Forth Accountancy we are experienced in working with clients who wish to review their current businesses/asset ownership structure, presenting the options, information and full tax implications of restructuring. If you think this might be for you - get in touch and we can discuss your options.