Why should entrepreneurs consider a family investment company (fic)?

For entrepreneurs looking to preserve and grow wealth across generations, FICs offer a compelling alterative to trusts and traditional holding structures.

What is a FIC?

A FIC is a private limited or unlimited company structure used primarily for wealth management and succession planning.  It allows families to retain control over assets while optimising tax efficiency and enabling long-term investment growth.

A FIC is typically set up by the Entrepreneur and family members who hold shares in the company.   The FIC receives cash or assets from family members which it then uses to invest in assets such as property, share portfolios, or other businesses.   The Directors of the FIC (often the founding Entrepreneur or other professionals) manage the investments and make decisions.  The profits of the FIC are taxed within the company structure rather than as personal income.

What are the key benefits?

• Control and flexibility.  Entrepreneurs can maintain some control through voting rights while passing economic value to the next generation.
• Tax efficiency.  FICS are subject to corporation tax rates which are generally lower than income tax rates; dividends from investments can be received by the FIC free of tax and reinvested (although, please also the further tax comments below).
• Succession.  Shares in the FIC can be gifted to family members and structured to enable gradual succession (and transition of wealth), thereby allowing the younger family members to participate in the FIC within clearly defined limits.
• Estate planning.  If structured correctly, future growth in the value of the assets can occur outside of the Entrepreneur’s estate for inheritance tax (IHT) purposes.
• Asset protection.  A well-considered FIC can help to protect family wealth from personal or commercial risks.
• Investment flexibility.  The FIC provides a structure for pooling of family wealth and investing in a wide range of assets (which can be professional managed).

What are the key disadvantages?

• Tax complexity.  While potentially tax efficient, FICs can trigger unintended consequences if not structured carefully (particularly around income shifting and value transfers). In particular, profits are distributed to shareholders, and they may be subject to tax on their personal dividends.
• IHT considerations.  Transferring assets to children may be a potentially exempt transfer or a chargeable lifetime transfer and therefore care should be taken when structuring the FIC.
• Governance issues.  Family dynamics and unclear articles of association/ shareholder agreements can lead to future disputes if roles and rights are not clearly defined from the outset.
• Compliance.  TheFIC must comply with annual Companies House reporting requirements and corporate governance rules.
• Regulatory scrutiny.  HMRC continues to review FIC structures and therefore transparency and compliance are key.

FICs are not suitable for everyone, but for many Entrepreneurs, they offer a sophisticated way to manage wealth, support succession and retain a degree of control. If you are considering this route, proper legal and tax advice is essential to tailor a structure that works for you and your family.

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