Family Investment Company: pass on wealth, keep control & minimise tax

This month’s insight comes from Consilium Tax Partner Craig Coyle as he examines the
benefits of a Family Investment Company, as part of Inheritance Tax planning.

Inheritance Tax rates in the UK

At 40%, Inheritance Tax rates can leave estates with significant bills to pay HMRC when the
value left exceeds £325k. Broadly, an estate is any property, investments, savings and other
assets held in ownership by an individual when they die. When we consider property values
in the UK, many taxpayers will reach this value without including additional assets.

The threshold increases to £500k in certain circumstances where there is an additional
allowance for the main residence. Although those amounts are in effect doubled for a
married couple with tax only payable on the second death in most instances, this can remain
a large liability which will go to HMRC rather than the family.

The value of Inheritance Tax Planning

Therefore, it makes sense to enter into Inheritance Tax (IHT) planning to reduce the
potential tax charge. This would be easier if everyone knew their date of death in advance
but none of us knows, as we step off the kerb engrossed in our mobile phones whether the
23 bus might be running on schedule.

The simplest form of IHT planning is to make gifts, as these will no longer form part of the
taxable estate. This is provided the donor survives seven years from the date of the gift.
However, parents can be reluctant to simply give cash to children who may not yet be at an
age where they are trusted to use it responsibly.

How does a Family Investment Company work?

A Family Investment Company (FIC) enables wealth to pass for Inheritance Tax purposes
whilst allowing the money to remain under the control of the senior generation. A FIC is set
up with two classes of shares:

  • A voting class held by the senior generation which controls the company and what it does with its funds; and
  • A class entitled to the capital value held by the junior generation, such that most of the value of the company moves into their estate for Inheritance Tax purposes (and out of the estate of the senior generation once the usual seven-year window passes).

The tax benefits of a Family Investment Company

The Family Investment Company then uses its funds to invest in whatever the senior
generation wants to put the money into (e.g. property, stocks and shares). The returns are
then taxed either at corporation tax rates or tax-free in the case of any dividend income.

Careful structuring by professional advisors is required to ensure the FIC is set up in a way
which ensures tax efficiencies, continuing control for the donor, and that the wealth will
remain within the family in future.

Our team of Tax specialists regularly work with clients and their legal advisors to ensure we
create a Family Investment Company structure that is tax efficient, retains control over their
money, and meets their objectives to pass wealth to family and loved ones.

Learn more about Inheritance Tax Planning services from Consilium Chartered Accountants
or contact Consilium to arrange a virtual or in-person appointment.

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