If you're looking for a way to protect and grow your family's money while keeping control, a Family Investment Company (FIC) might be the right choice. This guide explains everything you need to know about FICs in simple terms.
What is a Family Investment Company?
A Family Investment Company is a private limited company set up to manage a family's investments and wealth. Instead of giving money directly to family members, you put it into a company that you control.
The main benefits are:
- You keep control of the money
- It can help reduce tax bills
- It protects family wealth for future generations
- It's flexible - you can change things as your family grows
How Does a Family Investment Company Work?
Here's the basic idea:
- You set up a private limited company (usually with help from a solicitor)
- You transfer money or assets into the company
- The company invests this money (in property, shares, etc.)
- You decide who gets shares in the company (usually family members)
- Profits can be kept in the company or paid out as dividends
Who Controls the Company?
The people who own the shares control the company. But you can set it up so that:
- Parents keep most voting rights
- Children get shares but can't sell them
- Different share types give different rights
Tax Benefits of a Family Investment Company
One big reason people use FICs is for tax planning. Here's how they can help:
| Tax Type | How FIC Can Help |
|---|---|
| Inheritance Tax | Assets in the company may not count as part of your estate |
| Income Tax | You can split income among family members who pay lower tax rates |
| Capital Gains Tax | You may pay less when selling investments |
| Corporation Tax | Company profits are taxed at 25% (often lower than personal tax rates) |
Setting Up a Family Investment Company - Step by Step
1. Decide if an FIC is Right for You
Consider:
- How much money you have to invest
- Your family situation
- Your long-term goals
2. Get Professional Advice
You'll need:
- A solicitor to set up the company
- An accountant for tax planning
- Maybe a financial advisor
3. Choose the Company Structure
Decide:
- Who will be directors
- What types of shares to create
- How voting rights will work
4. Transfer Assets into the Company
This might include:
- Cash
- Property
- Investments
- Business assets
5. Make Investment Decisions
The company can invest in:
- Stocks and shares
- Property (to rent out)
- Bonds
- Other assets
Pros and Cons of Family Investment Companies
Advantages
- Control: You decide how money is used
- Tax efficiency: Potential savings on several taxes
- Asset protection: Company structure can shield assets
- Flexibility: Easy to add new family members
- Continuity: Can last for generations
Disadvantages
- Costs: Setting up and running a company isn't cheap
- Complexity: More paperwork than personal investing
- Tax risks: Rules could change and reduce benefits
- Family disputes: Could cause arguments about money
Alternatives to Family Investment Companies
FICs aren't the only option. Consider:
Family Trusts
Good for:
- Younger families
- When you want to give up control
- Certain types of assets
Limited Liability Partnerships (LLPs)
Sometimes used for:
- Property investment
- Business ventures
Direct Gifts
The simplest option, but:
- You lose control
- Might trigger tax bills
Common Mistakes to Avoid
- Not planning for the future: What if family relationships change?
- Ignoring tax rules: Some transfers can trigger unexpected tax bills
- Poor record keeping: Companies must keep proper accounts
- Choosing the wrong directors: They make important decisions
- Forgetting about costs: Accountants and lawyers aren't free
Real Life Example: The Smith Family FIC
Mr and Mrs Smith (both 55) set up an FIC:
- They transferred £2 million of investments into the company
- They kept 60% of shares with full voting rights
- Their two adult children got 20% each (non-voting shares)
- The company invests in property and shares
- Profits are partly reinvested, partly paid as dividends
Results after 5 years:
- Investments grew to £2.5 million
- Children received £15,000 each per year (taxed at their lower rates)
- £500,000 saved in potential inheritance tax
- Family still has full control over big decisions
Resources and Further Reading
Official Guidance:
Helpful Articles:
Professional Bodies:
- Law Society (Find a solicitor)
- ICAEW (Find an accountant)
Final Thoughts
A Family Investment Company can be a powerful tool for managing family wealth across generations. It offers control, tax benefits and flexibility that other options can't match. But it's not right for everyone - the costs and complexity mean you need substantial assets to make it worthwhile.
The key steps are:
- Understand how FICs work
- Get professional advice tailored to your situation
- Plan carefully for both the short and long term
- Review regularly as your family and tax laws change
With proper planning, an FIC can help your family build and protect wealth for decades to come.
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