Family Investment Companies

Family Investment Companies (FIC) are private companies established by wealthy families, allowing family members, usually parents, to retain control over the assets contributed whilst investment returns accumulate in a tax efficient manner. Given the growing disparity between personal and corporate tax rates in the UK, FICs remain popular as income and gains accrue within the FIC and are taxed at lower corporate tax rates. Unless the accrued investment returns are distributed to shareholders, no further UK tax will arise; giving flexibility to unwind the FIC and distribute accumulated wealth in the future, perhaps when shareholders are resident outside the UK. Another attractive feature of FICs is their role in succession planning, as different classes of shares can be created; with non-voting shares gifted to children in order to hand wealth down the generations without ceding control until the new shareholders are deemed capable by their parents.

Key Highlights:

  • Tax-efficient wealth planning tool
  • Parents retain control of investment strategy
  • Incentivise the next generation to responsibly manage family wealth

Examples:

  • A wealthy UK-resident deemed domiciliary held a significant investment portfolio in Jersey in his personal name. As a deemed UK domiciliary, the income and gains accruing on the Jersey portfolio were taxed in the UK to personal rates of tax under the arising basis of taxation. In order to streamline his affairs, the client worked with Dominion and his tax advisor to contribute the portfolio to a newly established FIC (a non-UK resident company) in return for preference shares, which he could redeem in order to extract capital from the FIC to fund non-UK expenditure. Income and gains now arise within the FIC, so are subject to UK corporate rates of tax rather than the higher UK personal rates of tax.
  • A wealthy UK client was keen to reduce his UK tax exposure on his investment income whilst introducing his grown-up children to the responsibilities of managing the family‚Äôs wealth. As a sophisticated investor, the client wanted to retain all investment control, so reserved these powers for himself in a newly established FIC. The children were gifted non-voting shares and would be given further responsibilities as their investment experience grew and the client was satisfied they had become capable under his oversight.