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A family investment company or FIC is nothing new. It is just a company which is used for investment purposes and people have been doing this for decades. So, you may ask why has the FIC become so popular in recent years?
In short, the reasons are twofold:
When you consider the highest rate of income tax payable
In simple terms, the reason is wealth accumulation. As a FIC pays less tax than you would if you personally invest in assets or held them in a trust, the income earned or payment received on the sale of those investments, are taxed at a lower rate, which means the FIC has more money to re-invest in further investments. Over a number of years, provided that the FIC re-invests its gains, it will accrue greater wealth faster.
Accordingly, FICs are set up for the long-term and not the short-term, the idea being that the founders of the FIC, being mum and dad, set up the FIC and inject the initial funds to invest in assets. Their children (and maybe their grandchildren) will also be shareholders and benefit from the growth created by the investments held by the FIC.
Another reason is that FICs like all companies have their own legal identity separate from the shareholders that own the shares in them. This has 2 benefits in that (a) the shareholders of the FIC benefit from limited liability (i.e. losses are limited to the value of the shares held by the shareholders), and (b) the assets held by the FIC fall outside your estate for the purposes of inheritance tax (provided the FIC is properly structured).
FICs are therefore a very tax efficient company structure to maximise accumulation of private wealth whilst also ensuring that any future inheritance tax bill is kept to a minimum.
The structure of the FIC will vary depending on your circumstances (i.e. family and existing assets). However, there are some common elements, including:
If you are considering using a FIC, there are a number of initial steps that you need to think about, such as how much you are going to invest in the FIC and what assets the FIC will invest in, are these existing assets or new assets.
Whilst we can advise you in relation to the legal structure of the FIC and drafting the relevant documents, you should also seek advice from your accountant or tax advisor and your financial advisor. If you don’t have such advisors, we would be happy to make the necessary introductions.
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Scott is a Partner in our Corporate and Commercial department
Clara is a Senior Solicitor in our Wills, Trusts and Probate department
Amanda is a Partner in our Wills, Trusts and Probate department
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