Although Family Investment Company’s (FIC) have been around for several years, awareness of the flexibility that such a vehicle affords has been growing in recent years. The use of such companies is particularly attractive to director-owners of family businesses who have children, enabling parents to retain control over assets whilst accumulating wealth in a tax efficient manner and facilitating future succession planning.
A FIC is a bespoke vehicle which can be used as an alternative (or in addition) to a family trust. It is a private company that invests rather than trades (the investments typically being equity portfolios or property). The shareholders are family members taking advantage of the use of Alphabet shares enabling each direct descendent family member to be allocated a different class of share.
Usually a FIC is set up with a founder share held by the individual(s) providing the capital, being either a cash loan or assets where no chargeable gain has yet to accrue. If a cash loan, the FIC uses the money to acquire assets (e.g. property), which generate a return. Such income is either re-invested within the FIC or can be used to repay the original loan tax-free.
‘Alphabet shares’ enables family members to have different levels of control over company decisions, rights to receive dividends and entitlements to the company’s capital value. In the incorporation of a FIC, the individual setting up the company could still be a Director and preferential Shareholder holding ‘A’ shares. Such a shareholder will have the right to appoint a director and vote at general meetings (and therefore hold control of the company), however, they must have no entitlement to dividends or to any return of capital. Other family members and often family trusts are then brought in as shareholders, each holding one ‘B’ share each. These ‘B’ shares have no voting or control rights but full entitlement to any dividends and/or return on capital. The shares can be held in trust if the child is a minor.
Transferring assets (as opposed to cash) into a FIC can have CGT consequences for the donor and/or Stamp Duty Land Tax in the case of property used to subscribe for shares in the company. As such these costs can render the use of the FIC structure prohibitive.
Partner note: Companies Act Part 17