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Family Investment Companies

Do they work?

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I'm trying to get my head around how an FIC actually works - client has seen a webinar and has asked me to consider one for themselves. My understanding (and this is where the client is coming from) is that they are a useful means of getting excess cash out of a trading company and into the hands of the next generation, with associated benefits such as reducing risk of TradeCo's trading status being tainted by surplus cash. Ie a new company is set up to hold a special class of share in TradeCo, effectively giving NewCo a right to income and nothing else (so that the initial value of the shares is low). Dividends can then be paid on that special class, tax-free, to NewCo. 

That all seems well and good, but - assuming NewCo's shareholders are different to those in TradeCo, does the payment of the 'special' dividends not fall foul of value-shifting?

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By Ruddles
11th Oct 2021 11:15

It may be of interest (or it might have been a temporary glitch) that when posting the above question I was not given the opportunity to post anonymously. I'm still anonymous of course, but the end of truly 'Anonymous' questions? If so, yippee.

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Replying to Ruddles:
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By David Ex
11th Oct 2021 11:22

Ruddles wrote:

It may be of interest (or it might have been a temporary glitch) that when posting the above question I was not given the opportunity to post anonymously. I'm still anonymous of course, but the end of truly 'Anonymous' questions? If so, yippee.

Have you not been around for a while? That option was removed a few months back as it was being misused in 99% of cases.

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Replying to David Ex:
By Ruddles
11th Oct 2021 11:51

I've been around, but don't post many questions these days!

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Replying to Ruddles:
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By David Ex
11th Oct 2021 12:08

Ruddles wrote:

I've been around, but don't post many questions these days!

It was obvious that most of the anonymous posts were (a) unnecessary and (b) from new, one-off posters.

I think if you need to post anonymously, you can contact the administrators and they will post.

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Replying to Ruddles:
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By Paul Crowley
11th Oct 2021 13:28

I understand that permission can be asked to post an Anon question

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paddle steamer
By DJKL
11th Oct 2021 11:29

The arrangement described may be one variant of a FIC but it is not the only variant of a FIC, you are slightly tarring all FICs with the same brush re this particular arrangement vis a vis the shares. A FIC can be something as simple as a company used to receive investment income (dividends) that merely controls the timing when individuals receive same distributed.

I would be hesitant with the idea of the share rights being split and part settled on different parties and the resulting valuation of these income rights.

With growth shares I can to a degree see the argument, there is little existing value at transfer as they depend upon future value increase.

Rights to income are to me more complicated as the existing reserves and the means of earning future reserves are surely tightly linked with shares with a right to income, these surely already carry a reasonable value at the point of transfer?

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By Steve Kesby
11th Oct 2021 17:02

I essentially agree with DJKL. There's no such thing as a Family Investment Company, per se. It's an arrangement, usually sold by lawyers, whereby a company is used, often effectively in place of a trust (with the use of so-called "Golden Shares"), that holds investments and is owned by members of a person's family.

The exact design is a matter for the architect, but the use of Golden Shares and Growth shares is typical.

I can see the concern over value-shifting as s29(2) will deem there to be (an initially low value) disposal to which s30 might then apply. I wonder though if an exempt distribution is a tax-free benefit for the purposes of s30(3), as an exempt distribution is brought into account in computing profits for corporation tax purposes, but is simply exempt. S31 seems to me to approach that same proposition from a different direction.

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By ireallyshouldknowthisbut
11th Oct 2021 18:01

ah Mr K, good to see you on here again.

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By Winnie Wiggleroom
11th Oct 2021 17:05

The first question is what exactly do they mean when they say FIC, or perhaps more accurately what is it exactly that they wish to achieve. As has been mentioned there are many forms of FIC.

We use a FIC as an IHT planning tool, I don't think we have ever placed share investments in a related company into a FIC, all our FICs hold "pure" investments, doesn't feel right somehow although I am sure it could be done.

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Jennifer Adams
By Jennifer Adams
13th Oct 2021 13:40
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