With the trend of establishing Family Investment Companies gaining momentum, it has become immensely important to explore ways of passing down wealth in a tax-efficient manner. So, if you are looking for advice on this matter from top-notch tax advisors in Walsall, here’s all you need to know.

What is a Family Investment Company?

To put it in simple terms, a Family Investment Company or FIC is a company where shareholders are only family members. In technical or taxation jargon, FIC is a tax-efficient vehicle permitting control over and protection of wealth to be transferred from an individual’s estate.

Sometimes perceived as an alternative to trusting, the primary objective of establishing FIC is to preserve the family’s wealth.

As far as rules and regulations are concerned, FIC follows the same set of rules and regulations required to run a private company’s management. If you are mulling over establishing FIC, remember that getting it registered at Companies House is mandatory. Likewise, you will also designate directorsand provide a memorandum of association, articles of association, and shareholders’ agreement. You also need to disclose and provide details of those family members who enjoy significant powers in the FIC structure.

FIC is also supposed to prepare and submit tax returns and pay corporation tax to HM Revenue & Customs (HMRC).

Factors To Consider When Establishing a Family Investment Company

Not one or two, there are multiple factors to be considered when setting up FIC. However, identifying recipients is the most important part of setting up a family investment company.

Likewise, other factors include issues related to grandchildren, death, and divorce – all of which are considered when preparing articles of the association and shareholders’ agreement.

Also, you can place provisions to prevent the amendment of the right or to limit the transfer of shares. You can also include deadlock provisions in the articles of the association to shield a family’s wealth to a greater extent.

How is a Family Investment Company Taxed?

Inheritance Tax

When you gift shares from a family investment company, it falls in the PET (potentially exempt transfer) category. It means the shares will get transferred from the FIC without being subject to any inheritance tax, provided that you survive 7 years from the date of the gift. Therefore, if parents set an FIC, the best approach is to allocate shares to both spouses. It will allow the married couple to pass on shares as a gift in a tax-efficient manner, and when the time duration of 7 years passes, these shares (passed through as gifts) will be free of inheritance tax.

Corporation Tax

HMRC subjects FIC to corporation tax at the rate of 19% (for the ongoing fiscal year). Likewise, HMRC will not subject the dividends FIC receives from other UK companies. However, if FIC itself pays dividends to beneficiaries and they surpass the tax-free limit, then they will be taxed at rates of 7.5%, 32.5%, and 38.1% (the rate of tax will depend on the income).

Likewise, certain legal aspects should be taken into consideration if changes are to be made in the share structure of FIC – specifically if any such issue plummets the value of existing shareholdings.

Tax calculation process

FIC –How Can IBISS & CO Help?

Our top-notch tax experts can walk you through the entire process – from helping you pick the right structure of the company to rules about income tax. In addition, they offer advice required to run a Family Investment Company to help you achieve your objectives.

IBISS & CO is a trusted chartered accountant firm in Walsall. We offer a wide range of tax and accountancy services, including inheritance tax relief. For a 15-Minute Free Consultation, contact us now.

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