Hey there! Let's talk about something that might sound a bit fancy but could be really useful for your family - Family Investment Companies (FICs). Don't worry, we'll break it down in simple terms.
What's an FIC, Anyway?
Think of an FIC as a special piggy bank for your family. It's actually a private company that you set up to look after your family's money, help it grow, and pass it on to your kids or grandkids without losing too much to taxes.
Why Bother with an FIC?
Save on Taxes: FICs often pay less tax than individuals. It's like getting a discount on your tax bill!
Keep Control: You can stay in charge of the money while gradually giving ownership to your kids.
Protect Your Legacy: It's a smart way to pass on wealth to the next generation without a huge inheritance tax bill.
How Does It Work? Let's Use the Johnsons as an Example.
Imagine Mr. and Mrs. Johnson have £1 million they want to invest for their family's future. Here's what they do:
They set up a company (the FIC) and put their £1 million into it.
They keep the 'boss' shares for themselves, so they make all the decisions.
They give their kids some shares too, but these shares can't make decisions - they just get money when the company does well.
The company invests the money in stuff like stocks or property.
When the investments make money, the company pays tax on it - but at a lower rate than the Johnsons would personally.
If they want to, the Johnsons can take money out of the company in ways that save on tax.
Years later, when Mr. and Mrs. Johnson pass away, their kids already own the company - so there's no huge inheritance tax bill.
Sounds Great! Any Downsides?
The Legal Bits (Don't Worry, We'll Keep It Simple)
FICs have to follow rules like any other company. This includes:
• Paying corporation tax (but it's often less than personal income tax).
• Following company laws about how to run the business.
• Possibly paying stamp duty when you put property into the company.
When it comes to inheritance tax, if you give shares to your kids and then live for another seven years, those shares usually won't count for inheritance tax. Pretty neat, right?
Is an FIC Right for Your Family?
An FIC can be a great tool if you've got a good chunk of wealth and want to:
• Grow your family's money while paying less tax
• Keep control of your wealth but start passing it on to your kids
• Avoid a massive inheritance tax bill in the future
But remember, it's not a one-size-fits-all solution. It works best for families with quite a bit of money to invest.
Want to Know More?
If you're thinking an FIC might be a good fit for your family, let's chat! We can help you figure out if it's right for you and guide you through setting it up properly. It's all about making your family's financial future as bright as possible!
Dr Clifford J Frank
LEXeFISCAL LLP
Partner
+44 (0) 208 092 2111
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