What does "Family Investment Company" actually mean?
A FIC is a private limited company whose shareholders are family members, designed to hold investments and grow family wealth in a tax-efficient way. Unlike a trading company, its purpose is purely to accumulate and distribute wealth. The share structure is designed so that the director (usually the parents) retains control while value passes to children over time - without triggering an immediate gift or Inheritance Tax event.
What types of assets can a FIC hold?
A FIC can hold almost any type of investment - stocks and shares, bonds, funds, cash, and commercial or residential property. It can also hold interests in other companies. The most common use is to hold an investment portfolio that would otherwise attract higher-rate income tax in the hands of the individual.
How does the share structure work in practice?
A FIC typically has multiple classes of shares - for example, "A" ordinary shares held by parents (carrying voting rights and dividend rights), and "B" growth shares held by or transferred to children (sharing in any increase in value but with no or limited voting rights). The precise structure depends on the family's goals. TLPI designs each structure individually rather than using a standard template.
Can I put existing investments into a FIC?
Yes, but this requires care. Transferring existing assets into a FIC may crystallise Capital Gains Tax on any accrued gains. An alternative is to loan cash into the FIC (the FIC borrows from you at a commercial rate and invests the proceeds) - this avoids both Inheritance Tax on the loan and CGT on transfer. The right approach depends on the nature of the assets and your tax position.
Is there an immediate Inheritance Tax saving when I set up a FIC?
A FIC is not itself an Inheritance Tax shelter for the founder's shares. If you hold shares in the FIC, those shares remain within your estate. The planning benefit comes from directing future growth into children's shares (which fall outside your estate from day one) and from loans to the FIC (which are repaid over time, reducing the estate). It is a long-term strategy, not a quick fix.
Can a FIC be used to hold buy-to-let property?
Yes, though this requires careful consideration. The tax treatment of residential property held in a company has changed significantly in recent years, including the restriction of mortgage interest relief. The FIC structure may still offer advantages depending on your portfolio size, personal tax rate, and long-term intentions. TLPI will assess your position before making any recommendations.
What are the ongoing administrative requirements of a FIC?
A FIC is a limited company, so it must file annual accounts and a confirmation statement with Companies House, pay Corporation Tax on its profits, and maintain proper books and records. TLPI will brief you on what is needed.
Can children who are minors be shareholders?
Yes. Minors can hold shares in a FIC, though they cannot enter contracts in their own name, so shares are typically held by a parent as bare trustee until the child reaches 18. Dividend income paid to minor children of a parent who controls the FIC can be subject to HMRC's settlement rules, which tax the income on the parent - planning is needed to manage this appropriately.
When does a FIC stop working?
A FIC is a long-term vehicle. It continues to provide benefits as long as wealth is growing inside it and family members are shareholders. It can be unwound by distributing assets, selling the company, or liquidating it - each with different tax consequences. The right exit strategy depends on the family's circumstances at the time.
How does a FIC interact with a business sale?
A common planning scenario is to set up a FIC before a business sale and route some or all of the sale proceeds into it - either directly (if the FIC holds shares in the business) or by loaning proceeds into it. This requires forward planning; it is much harder to implement after a sale has completed. If you are considering selling a business, speak to us as early as possible.
Is a FIC disclosed to HMRC?
A FIC is a UK limited company registered at Companies House, so its existence and ownership are public. Its accounts are filed with Companies House and its Corporation Tax return is submitted to HMRC annually.