Family Investment Company

Family Investment Company

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I have a client who is looking to set up a Family Investment Company (FIC) for the IHT benefits. He is to own 'A' shares with no rights to income or capital. The 'B' shares that will be held by his children which will have these rights (but no voting rights).

My client is to lend the FIC £650k to be repaid when funds allow.

With the £650k my client wants the FIC to purchase shares in his established unlisted trading company.

My question is, would he still be able to claim Entrepreneurs Relief on the sale of part of his shareholding in his unlisted trading company to the FIC?

Thanks

Replies (6)

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By Justin Bryant
02nd Jun 2017 12:52

Re CGT he would need to watch TiS and in any event would be a bit mad to put a BPR company into something that may not qualify for BPR. See:
https://www.pumptax.com/wp-content/uploads/2017/01/EC-Estate-Planning-fo...

Even if the FIC was a BPR company, shareholder loans thereto are never a good idea as they do not qualify for BPR and prefs should be issued instead.

Thanks (1)
Replying to Justin Bryant:
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By Phil30
02nd Jun 2017 13:25

Thanks for the response, Justin

I am aware of the BPR angle, it was more the TiS side of things that concerned me as I understand it is extremely difficult to get HMRC clearance on such matters these days.

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Replying to Phil30:
By Ruddles
02nd Jun 2017 13:32

Since HMRC are of the view that taking back only what is rightfully yours is offensive, there's little point in giving them the satisfaction of saying no to a clearance application.

Having said that, you really need to ask the client "why?"

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Replying to Ruddles:
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By Phil30
02nd Jun 2017 14:48

Thanks for your reply, Ruddles

The 'why' is because the company has enormous earning power and it pays out the majority of its profits each year as dividends, whilst its Market Value is relatively modest.

Dividends redirected to a FIC will achieve 2 things - 1) avoid the personal tax charge at 38.1% and 2) prevent my client's estate from growing further.

The value of the loss of BPR on the shares purchased by the FIC will be recovered in the above savings in the first year!

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Replying to Phil30:
By Ruddles
02nd Jun 2017 14:56

So, one of the main purposes (1) is to achieve an income tax advantage?

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By Justin Bryant
02nd Jun 2017 15:55

Perhaps the planning in the link below could be considered in that case:

https://www.taxjournal.com/articles/exiting-shareholders-tax-efficient-m...

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