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If you are seeking to pass on your assets to the younger generation, there are various options, and the most efficient way is by setting up a Family Investment Company (FIC). A FIC is a private company that is controlled and run by its directors (usually parents), with family members (usually their children) owning the shares.
All day-to-day control and investment decisions are made by the directors. A FIC can therefore be used by individuals who want to transfer value to family members or other individuals but retain some control over both the assets gifted and the access of the recipients.
Why opt for a FIC?
- A means to pass on wealth down the generations
- The ability to retain control whilst giving up beneficial ownership
- Asset Protection
- Protection against inheritance tax (IHT)
- Tax savings and deferral
In addition to being able to pass down wealth without an immediate IHT charge, FICs can be tax-efficient vehicles that initially bring income within the corporation tax regime instead of the charge to personal taxes.
The governing articles of association and provisions of a FIC can be tailored to the specific needs of the family, covering aspects such as distribution of profits, the return of capital to shareholders, transfer of shares and the appointment of directors.
A company will pay corporation tax at 19% (up to 25% from April 2023), which is generally lower than the personal income tax rates (the top rate being 45%). In addition, no corporation tax will be payable on a majority of dividends received by a company and most management and business expenses will be deductible for corporation tax purposes. Such expenses are not tax relievable for individuals.
FICs are particularly efficient if profits are retained in the structure for reinvestment. There will be additional tax if profits are extracted from the company.
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