Chartered Accountants & Registered Auditors
+44 (0) 28 90325050 |
www.muldoon-accountants.co.uk family Investment company
a family investment company (“fIc”) is a long-term tax-efficient vehicle that enables an individual to pass assets out of their estate for Inheritance tax (“Iht”) purposes while retaining control and protection of the assets for the benefit of the family. a fIc can be an alternative to using trusts or can be used in conjunction with a trust.
a company is set up with a founder share held by the individual who provides the initial capital. other family members are brought in as shareholders with different classes of shares. these classes of shares will have different rights generally designed to ensure the founding shareholder retains control of the fIc. this principal is the same as that of using a trust.
from an income tax perspective, dividends paid to children over 18 up
to the basic rate tax band can be a very tax-efficient way of extracting funds to help with costs such as university fees. It is not generally tax efficient to pay dividends to the founder shareholder as their income levels are usually high.
the fIc is very tax efficient where capital and income can be retained within the company for long periods due to the low rates of corporation tax, currently 19% reducing to 17% in 2020. this is in comparison to the 38.1% top rate of dividend income tax and the 20% top rate of capital gains tax.
from an Iht perspective the benefits include value being passed to the other shareholders on the creation of the company, subject to the seven- year survivorship rule, and any increases in value are outside the
estate of the founding shareholder. also shares in the fIc can be transferred at a later date therefore reducing the Iht liability further, again subject to the seven-year survivorship rule.
In summary a fIc can provide a tax- efficient solution to family succession issues and offers flexibility to retain control while passing value to the next generation. the solution will be most relevant to individuals with investment assets and income who want to preserve this for the next generation and protection from the higher rates of income tax.
as with everything, fIcs must be handled with care to avoid falling foul of any anti-avoidance tax legislation and there are also the non-tax issues to be considered e.g. company and commercial law.
If there is anything in this article that affects you or somebody you know please speak to Steven McVitty for independent professional advice.
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