Family Investment Companies: A vehicle worth considering?

First published in The Business.

For those of us without mind-reading abilities, it’s difficult to know what Rachel Reeves may announce in the coming Autumn Budget. As Inheritance Tax (IHT) changes are rumoured to be on the horizon as a means of plugging the reported gap in the nation’s finances, we’ve seen an increasing number of enquiries about Family Investment Companies (FIC).

While trusts have traditionally been used as a means of IHT planning, FICs are increasingly seen as an alternative way to pass wealth to future generations in a tax-efficient manner. In particular, by using a company as a wealth planning tool, this approach allows the founder to transfer wealth to other family members, while potentially retaining access to some of the funds given away, and also maintaining control over how funds are invested and accessed by the family members to be benefitted.

In comparison to using a trust, an FIC can offer a number of benefits. For example, some clients find the structure of a company easier to understand and administer as compared to a trust. Companies are also not subject to the IHT regime that applies to trusts, including potential charges to tax on establishment and throughout the administration of the trust. Additionally, in certain circumstances (and due to differences between the corporation tax regime as opposed to income tax), FICs can offer a more efficient structure, especially if there is a willingness to ‘roll-up’ income within a structure in order to secure longer-term growth.

While FICs can therefore be a helpful succession planning tool, it’s important to consider individual circumstances and, in some cases, other factors that can make an FIC look less attractive, such as increased costs of operation, tax exposure on establishment, and the tax cost of accessing large capital withdrawals. As such, we would always suggest that FICs are looked at in light of each client’s circumstances and alongside other options to inform whether an FIC is the best route for them.

Seeking expert legal, tax, and investment advisors who can take a considered and experienced approach to your estate planning needs should always be your first port of call before heading to Companies House.

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