Understanding Family Investment Companies (FICs): A Modern Wealth Planning Tool

In recent years, more wealthy families have turned to Family Investment Companies (FICs) as part of their wealth and estate planning strategies. While trusts have long been a popular tool, FICs offer an alternative structure with unique advantages, particularly for those wishing to maintain control over family assets while achieving tax efficiency.

What is a Family Investment Company?

An FIC is a private limited company set up to hold and invest family wealth. Typically, parents or founders act as directors, controlling the company’s investments, while shares are distributed among family members, often children or grandchildren. This allows the family to grow assets in a controlled environment, separating management control from ownership.

Why Are FICs Popular?

FICs have become more popular in recent years due to changes in trust taxation and the desire for more flexible succession planning. An FIC can:

• Provide tax-efficient growth (corporation tax rates are often lower than personal income tax rates)

• Retain control with the founder while transferring value to younger generations

• Allow structured dividend policies to distribute profits as needed

• Offer flexibility in managing investments across property, shares, and other asset classes

How is an FIC Structured?

An FIC typically has:

• A small number of directors (often parents)

• Different share classes for voting and non-voting shares

• Shareholders (often family members)

• Shareholders’ agreements and articles of association outlining how the company is run

Founders often inject capital as loans to the company, which can be repaid tax-efficiently, while profits accumulate in the company at corporation tax rates.

Tax Implications

• Corporation tax: The company pays tax on profits, currently at 25% (subject to thresholds).

• Dividend tax: When profits are extracted, shareholders pay dividend tax personally.

• Inheritance tax (IHT): Shares can be gifted to the next generation, using exemptions and reliefs, reducing the founder’s estate for IHT purposes.

FIC vs Trusts: Not Always Either/Or

While some articles compare FICs and trusts directly, it’s important to note they serve different purposes. Trusts offer strong asset protection and privacy, while FICs provide control and tax efficiency, especially for large sums invested over the long term. Often, a combination of both may suit a family’s needs.

Final Thoughts

Family Investment Companies are a powerful tool for families wishing to manage inter-generational wealth, but they require careful setup and ongoing governance. Professional advice is essential to ensure they align with tax, legal, and family objectives. If you are interested in exploring whether an FIC is right for you, please feel free to contact us for a consultation.