A Guide to Family Investment Companies

A GUIDE TO FAMILY INVESTMENT COMPANIES
Family Investment Companies (FIC) are an increasingly popular alternative to trusts and may be the
ideal succession planning vehicle for your family. A FIC is a private company which holds family
investments and its directors and shareholders are usually members of the same family. It provides a
tax efficient and flexible means of transferring, protecting, controlling and accumulating wealth.
Tax

A FIC has a number of tax benefits.1

Inheritance tax (IHT) is not chargeable when assets are transferred to a FIC. Assets transferred into
trust can trigger an upfront IHT charge and generally attract ongoing IHT charges on a distribution
and 10 year anniversaries.

The profits (including capital gains above inflation) of a FIC are subject to corporation tax which is
charged at a lower rate than the income tax and capital gains tax to which trusts and individuals are
subject. And, unlike FICs, trusts and individuals do not benefit from indexation allowance.

Dividend income received by a FIC from UK resident companies (and many non-UK resident
companies) is not subject to tax.

Gifts of shares in the FIC to family members are not subject to IHT provided that the donor survives
seven years.

There is no further tax to pay on dividends paid by the FIC to basic rate taxpayers.
Control

The directors of the FIC are usually family members, or are appointed by the family.

The directors have day to day control of the company, including:
o
The powers to determine and implement the investment strategy and to authorise the issue and
transfer of shares; and
o
The discretion to determine the level and timing of income payments to one or more
shareholders (by way of a dividend).
Asset protection

A FIC may provide some protection for family wealth in the event of the separation or divorce of a
family member, especially if they are prepared as part of an overall family wealth planning strategy
in conjunction with the use of prenup and postnup agreements and, where appropriate, the use of
trusts.

The constitutional documents of a FIC can provide that only bloodline family members are permitted
to hold shares, which may lessen the likelihood that a court will direct the transfer to a spouse of
either (a) shares in the FIC or (b) the proceeds of the realisation of assets within the FIC, to satisfy
the financial claims of a spouse within divorce proceedings.
Issues to consider

Will your FIC be a limited or unlimited company? An unlimited FIC is not required to file accounts at
Companies House so financial information for the FIC is not publicly available. However, its
shareholders have unlimited liability for the debts and liabilities of the FIC, albeit that these may not
be considered significant where the company is not trading and is only holding investments.

How will you fund the FIC initially? A CGT charge may arise on the transfer of assets to the FIC
and it is therefore usually preferable to transfer cash and/or assets where no chargeable gain has
yet accrued. There is flexibility for the person establishing the company to retain an income stream
by use of a loan or preference shares.

Who will be shareholders of the FIC? It is common to provide that only bloodline family members
can hold shares, although this may be unduly restrictive (e.g. if there are step children in the family).

What rights will shareholders have? Will each shareholder have the right to receive income by way
of a dividend? Will each shareholder have the right to share in the capital of the FIC? You can
establish and tailor the FIC to suit the circumstances of your family.

Who should have voting control of the FIC? At least one shareholder must have voting rights and,
as a result, control certain fundamental aspects of the FIC. This responsibility is usually given to a
senior family member.

Will there be any restrictions on the powers of the FIC (e.g. to only invest in particular asset classes)
or will the FIC be free to operate at the discretion of the directors without restriction?

Is a shareholders' agreement or family charter required? You can address sensitive matters in these
documents which, if properly drafted, are not available to the public at Companies House (unlike a
company’s constitutional documents) and which will remain private.
Example

Each FIC is bespoke to the needs of the particular family and no two FICs are the same. The
purpose of the relatively simple example below is to illustrate the separation of control and
ownership, and some of the share ownership options available. We can advise you on the legal
structure that is appropriate to achieve the desired objectives for your family.

Each shareholder has a separate class of shares, with each class having the voting, income and
capital rights provided in the FIC's articles of association. In our example, there are four separate
classes of shares: ordinary (voting) shares (also known as the "golden share"); class A shares;
class B shares; and, class C shares.

Only the ordinary shares have voting rights. The holder of the ordinary share, a senior family
member, therefore has the right to appoint and remove the FIC's directors and has overall control
of the FIC. The ordinary shares have no rights to income or capital and therefore no rights to
participate in the profits of the FIC. However, the person establishing the FIC could secure an
income via preference share dividends and/or interest payments due on funds loaned to the FIC.

The class A shares, class B shares and class C shares all have rights to income and capital.
Different family members hold shares of a separate class, which gives the directors the discretion
to pay income by way of a dividend to one family member to the exclusion of others.

The class B shares are held on bare trust for child B, who is a minor. The shares and any income
and capital deriving from the shares are held on behalf of child B by a trustee (commonly a senior
member of the family) until the child reaches the age of 18, at which point the child can demand
that the assets are transferred to them.

The class C shares are held in a discretionary trust, and their value is calculated to ensure that
there is no immediate IHT charge. Members of the family or persons independent of it can act as
trustees. Additional flexibility and control is provided by the trustees having the discretion to
determine which of the beneficiaries are to receive capital and income. The beneficiaries of the trust
do not have a fixed entitlement to income or capital.
At Brabners LLP we specialise in advising high net worth individuals on succession and estate
planning as part of an overall wealth management strategy. We have extensive experience in
advising on FIC structures and work closely with wealth management advisers and accountants
to ensure that the FIC achieves the desired objectives for the particular family.
If you would like more information or advice about Family Investment Companies please contact
either Andrew Millar, Partner from our Corporate team, or Richard Bate, Partner from our Private
Client team.
Andrew Millar
Partner - Corporate
Tel: 0161 836 8965
Email: [email protected]
Richard Bate
Partner - Private Client
Tel: 0161 836 8840
Email: [email protected]
The information in this leaflet is accurate at the time of writing October 2014.
1
Tax information and other details are subject to change, please contact us for any legal update that may apply.

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