Are Family Investment Companies (FICs) the best way to preserve family wealth or do trusts still have the edge?
Craig Simpson, Tax Partner at Bates Weston, gives his views in a recent article written for Taxation magazine.
Craig notes that trusts have been used to preserve family wealth for centuries. FICs are the new kids on the block, but already they have been used enough that HMRC has a specialist unit to deal with them.
The main purpose of a trust is to protect assets, separating their legal and beneficial ownership. On the other hand, a FIC uses a limited company to separate ownership and control of assets. In a FIC the shareholders are family members, allowing parents to retain control over the assets while growing wealth and facilitating tax efficient succession planning.
In Craig’s full article in Taxation, he looks at the flexibility, inheritance tax (IHT) implications and income protection given by Trusts and FICS and points out:
- Clients often prefer a company to a trust as it is a structure they are familiar with
- Trusts are highly flexible structures, making their creation more complex than FICs
- FICs are flexible and can be tailored to individual needs, with many tax advantageous ways of setting them up
- Both trusts and FICs have Inheritance Tax pros and cons
- It is possible to create a blended trust and FIC solution when estate planning
“Given the advantages, disadvantages and limitations of both trusts and FICS, it is possible to combine the best features of trusts and family investment companies to provide a tailored solution for clients. Perhaps shares that are designated for children or more junior members of the family can be held in trust to protect the growing value from wayward teenagers or spouses. Alternatively, trusts could make investments through a FIC to enjoy some of the roll-up tax advantage and to add greater flexibility in making future capital gifts.
Using trusts and FICs in combination could also enable the transfer of value to future generations, not possible when using FICs in isolation. It is possible to keep one’s options open by using a combination of both.”
If you are looking at succession planning and expect to exceed the IHT nil rate band (£650,000 for a couple) by a significant sum, a FIC and/or Trusts may be possible solutions. Please do get in touch with Craig Simpson, without cost or obligation, to see how we can help.
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.