How FICs can be a less taxing alternative to trusts
Family Investment Companies (FICs) are becoming an increasingly popular alternative to discretionary trusts for individuals looking to pass wealth to the next generation as part of their wealth management and associated tax planning.
The taxation, administration and costs associated with trusts have changed over recent years and gradually made them a less attractive option in certain circumstances.
A FIC allows for features that a trust does not. The key to a FIC’s success is based upon how the company is structured. A FIC is not an “off the shelf” product that looks the same in each scenario and the structure will depend on the family’s wealth, assets, relationships and requirement for income.
FICs are potentially attractive for tax purposes due to currently lower rates of corporation tax in comparison with the income tax on trusts. However, the risks of “double tax” can mean taking consistent income from a FIC is best avoided, this is sometimes overcome by funding the FIC via a loan, which is repaid gradually over time.
The common approach is for founding family members to set up the FIC, take the board positions and retain majority voting rights (sometimes through a “golden share”). This allows senior family members to retain control, which is often an important requirement.
Different classes of shares are usually issued to the next generations, providing flexibility on dividends. Articles of association and shareholders’ agreements need to be carefully drafted to ensure the safe future of the FIC.
Considerations of the suitability of a FIC often revolve around inheritance tax planning and possible divorce of children. A FIC is a long-term arrangement to put in place and it is of paramount importance to consider all possibilities and set up something that will work and ensure the family’s plans are realised efficiently for years to come.
Considering all of the options with TBI’s expert Corporate and Private Client departments ensures the correct solution is utilised.
Discuss whether a FIC may be suitable for you or your client today. Call 01740 646000 or visit tbilaw.co.uk.