The little-known alternative to trusts that could help you dodge inheritance tax
In a bid to minimise the effects of Labour's looming inheritance tax raid, increasing numbers of people are turning to Family Investment Companies (FICs) as a means of protecting their hard-earned wealth.
Despite being less widely known than trusts, they are becoming the 'go-to' option for inheritance planning and, while they have traditionally been of interest for the ultra wealthy, you don't necessarily have to be a high net-worth individual to benefit. However, there are lots of ways these companies can be set up and the rules can be complex.
Here, Telegraph Money delves into the complex world of FICs to detail how setting up a company can prevent a huge inheritance tax bill.
What is a Family Investment Company?
How to set up a Family Investment Company?
What's the difference between a Family Investment Company and a trust?
Why is there a rise in demand for Family Investment Companies?
Do Family Investment Companies pay corporation tax?
What fees can you expect to pay?
What are the downsides of using a FIC?
What is a Family Investment Company?
A Family Investment Company is typically a private limited company designed to pool family assets. There are several ways these companies can be set up, which can each fulfil different purposes – but they can be used to pass wealth to children or other family members in a tax-efficient way.
Usually set up by parents or grandparents, the company is owned by family members. These tend to attract interest from the ultra-wealthy, however, tax advisers said it's now common for a broader £2m to invest.
One of the most common uses of a FIC is to essentially put a 'lock' on an estate's value – this may be a concern if, for example, growth could erode inheritance tax allowances.
Here, parents can set up a FIC they loan money to, and have any growth in the value of the company go to the children (note that this option may often be combined with a trust to hold the shares where the older generation wishes to retain full control of the company and who can benefit).
Alternatively, parents could establish an FIC by subscribing for shares, which they immediately give away to children or other family members. The value of the gift will fall out of the donor's estate for inheritance tax purposes, provided the donor survives the gift by at least seven years – but it's important to consider whether you are willing to relinquish control to the company's shareholders (ie, other family members).
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