Family Investment Companies (FICs)

Welcome to the latest edition of The Business Owners' Property News - my newsletter dedicated to helping business owners get started in property investing.

My vision has always been to create an intergenerational investment company - one that my kids can inherit and grow further.

Essential to this is creating a Family Investment Company - read on to find out more.

What is a FIC?

A Family Investment Company (FIC) is a private limited company in the U.K. used as a vehicle for family wealth management and investment. It’s structured to allow family members to collectively invest, grow and manage assets — such as property, stocks or bonds — while offering potential tax benefits and enabling wealth transfer across generations.

Here’s an overview of the main aspects of a FIC

Ownership Structure

In a FIC, family members become shareholders, with shares allocated according to family objectives. This allocation can be structured to give senior family members control over voting rights, while younger members may receive shares with only economic benefits.

Tax Efficiency

FICs are typically more tax-efficient for wealth accumulation compared to holding assets personally. Profits generated within the FIC are subject to corporation tax (currently 25% in the U.K. for most businesses) rather than individual income tax, which can be higher. Additionally, capital gains within a FIC are taxed at the corporate rate, allowing for greater reinvestment potential.

Wealth Transfer and Inheritance Planning

A FIC allows shares to be gifted to younger family members without immediately triggering inheritance tax (IHT), as gifts can qualify for certain IHT reliefs if they meet conditions. Transferring shares gradually over time can reduce IHT exposure, making FICs a popular tool for intergenerational wealth transfer.

Asset Control and Protection

A FIC enables senior family members to retain control over assets and decision-making while also bringing younger generations into the ownership structure. The limited liability of a company structure also offers a degree of asset protection against personal claims or liabilities.

Dividend Distribution Flexibility

Dividends can be distributed to shareholders based on the company’s profits and the family’s tax preferences. This flexibility allows family members to receive income in a tax-efficient way based on their individual circumstances.

Investment Focus

FICs can be used to hold various types of investments, including stocks, bonds, and real estate, with a long-term view of growing family wealth. Families often set up FICs to centralize and simplify investment management.

Setting up a Family Investment Company (FIC) in the U.K. requires careful planning to ensure it aligns with your financial, tax, and family objectives. Here’s a step-by-step guide:

How do I set up a FIC?

Define Your Objectives

Purpose: Identify the main reason for setting up the FIC (e.g., tax efficiency, wealth transfer, asset protection).

Assets: Decide what assets the FIC will hold—property, stocks, bonds or other investments.

Family Roles: Determine who will be involved and their respective roles in the company (e.g., directors, shareholders).

Choose the Right Structure

Shares: Design a share structure that reflects family objectives:

Voting shares: Typically held by senior family members to retain control.

Non-voting shares: Allocated to younger generations to allow wealth transfer without ceding control.

Articles of Association: Customize these to align with your family’s needs, setting rules for decision-making, share transfers and dividend policies.

Incorporate the Company

Register the company with Companies House.

Provide details of the company name, directors, shareholders and share structure. Use a service provider or professional advisor for guidance on registration and compliance.

Transfer or Contribute Assets

Transfer cash, property or other investments into the FIC.

Ensure any transfers are structured to minimize tax liabilities, such as capital gains tax or stamp duty land tax (SDLT) on property transfers.

Optimize Tax Efficiency

The FIC will pay corporation tax on profits (currently 25% for most companies).

Dividend distribution is taxed at the shareholder level but can be tailored to individual tax circumstances.

Work with a tax advisor to ensure compliance and take advantage of available reliefs.

Establish Governance and Control

Appoint directors to manage the company.

Create a shareholders’ agreement to outline rights, responsibilities and conflict resolution mechanisms.

Set clear policies for reinvestment of profits, dividend distributions and decision-making.

Engage Professional Advisors

Setting up and running a FIC involves complex legal, tax, and financial considerations.

Work with:

Tax Advisors: To ensure the structure is tax-efficient and compliant.

Solicitors: To draft legal documents, including articles of association and shareholder agreements.

Accountants: To manage ongoing financial compliance, including tax returns and annual accounts.

Regularly Review and Adjust

As family circumstances or tax laws change, review the FIC structure to ensure it remains fit for purpose. Regular meetings and financial reviews are essential for effective governance.

Final Thoughts

Setting up a FIC can offer significant benefits in terms of tax efficiency, wealth protection, and succession planning. However, its success relies on detailed planning and professional advice. Engaging experienced advisors early in the process is crucial to avoid costly mistakes and to ensure that the FIC achieves your family's long-term objectives.

If you’re considering a FIC, start with clear goals and the right professional team — it’s not just a financial tool but a cornerstone for building a lasting legacy.

So there we have it - lots of information on Family Investment Companies - which may well be part of your Vision. To get more clarity on your vision, mission and goals, get in touch to find out more about The Business Owners' Property Programme and how I can help you achieve your property goals.

Get in touch on 0121 647 7090 or email [email protected]