Key takeaways
FICs offer a flexible way to hold family wealth
This can balance the needs of those who have generated the wealth and the next generation.
Planning prior to exiting a trading business can lay the foundations for an FIC
A pre-sale re-organisation can also help to minimise tax and maximise the proceeds received on sale.
An FIC can be an effective alternative to a trust, or created in conjunction with trust planning
It is important to ensure the FIC fits into a well thought out multi-generational succession plan.
Family investment companies (often referred to as FICs) can be highly effective as part of a long term, multi-generational succession plan. Managing wealth within an FIC provides control, flexibility and tax efficiencies and can work well instead of, or in conjunction with, more traditional planning with trusts.
What is an FIC?
An FIC is a private company limited by shares with the aim of holding and investing family wealth, rather than operating as a trading business. This corporate structure allows for different classes of shares to be issued to various family members with different rights to things such as dividends and voting. It is this distinction between who controls the company and who can benefit from it that makes it an attractive structure for multi-generational succession planning.
This distinction allows the founders of the company to retain control, while enabling wealth to be passed down the generations in a well-managed way. The founder can therefore control how assets of the company are invested, how the company is managed, when dividends will be declared and to whom they will be paid. However, it also provides an opportunity for the next generation to be gradually introduced to the responsibility of being the custodian of multi-generational wealth.
Exiting a trading business
Business owners considering a sale of their business could consider a group structure pre-sale, within which the holding company will act as the FIC post sale. This can create tax savings for Capital Gains Tax purposes on the sale of the trading business, whilst also enabling income tax efficiencies once the sale proceeds are invested.
If planning is not done pre-sale or prior to a liquidity event, then there is still the opportunity to create an FIC post sale. This can be done in a number of ways whether through subscription for shares, loans to the company or gifting to children to subscribe for shares.
This is no different to those with wealth generated from other means who find themselves is the challenging position of trying to navigate an increasingly difficult tax landscape whilst balancing how best to pass on wealth through the generations.
Is an FIC for you?
Whether an FIC is the right structure for any individual very much depends on the assets they hold, their family circumstances and ultimately what they want to achieve from their succession planning.
Having the opportunity to pass on wealth in a controlled way, particularly if this is based on the future growth of the family wealth, within the often-familiar vehicle of a company can be very useful. The structure lends itself to implementing good governance and a clear but flexible framework which, if coupled with well thought out wills and wider trust arrangements, can create a robust and tax efficient multi-generational plan for the management and transfer of wealth.
That being said, FICs still work within the parameters of company law and the administrative and compliance obligations which this brings. They are also still subject to tax, and like any structure it is therefore key to ensure that an FIC is built on solid foundations. The issuance of shares and the rights attached to them, the funding model and the overall structure of the FIC are some of the cornerstones for creating a successful FIC which need bespoke advice and careful consideration from the outset.
Whilst an FIC may sound attractive in principle, it is important to fully understand whether it fits with an individual’s wealth, family and the overall aims and objectives for their succession planning.
Our Succession Planning, Wills, Trusts and Estates and Corporate teams work collaboratively with business owners and high net worth individuals to create effective and tax efficient corporate structuring which can benefit clients and multiple generations of their families. Contact us today to discuss how we can support you with succession planning.
