Navigating Wealth Structuring via Family Investment Companies and Trusts
Alan Rajah
by Alan Rajah
In an era of increasingly complex cross-border tax legislation and evolving estate planning strategies, financial advisers and tax professionals must remain informed about innovative structures that optimise wealth transfer, tax efficiency, and control. Among these, Family Investment Companies (FICs) and trusts have emerged as pivotal tools for high-net-worth families in the UK. This article explores the strategic application, tax considerations, and comparative advantages of FICs and trusts, providing tax advisers with insights into designing tailored, compliant solutions.
Introduction
Over recent decades, the landscape of wealth management has undergone significant transformation. Globalisation, fluctuating tax regimes, and heightened regulatory scrutiny have prompted high-net-worth individuals (HNWIs) and their advisers to seek structures that balance control, flexibility, and tax efficiency. FICs and trusts, each with distinct features and benefits, serve as critical components in modern estate planning.
The Rise of Family Investment Companies (FICs)
A FIC is a private limited company specifically established to hold, manage, and grow family wealth in a tax efficient manner. It can hold a mix of investments, such as shares, property portfolios, or cash, and is increasingly popular among high net-worth families seeking an alternative to traditional trusts.
At its core, a FIC allows the older generation (typically parents or grandparents) to retain control over the assets while passing the economic value and future growth to the next generation. Control is retained through voting shares or director roles, while value is passed down via non-voting or growth shares issued to children or held in trust.
Why Are Families Turning to FICs?
In the face of increasingly complex tax legislation, FICs offer a practical structure that aligns long-term family wealth planning with the current UK tax framework. Key benefits include:
Inheritance Tax (IHT) Reduction
By gifting growth shares or transferring value over time, families can significantly reduce exposure to IHT.
Gifts of shares qualify as Potentially Exempt Transfers (PETs) and fall outside the founder’s estate if they survive seven years.
Retain Control over Assets
Founders often act as directors and hold “freezer” (voting) shares, preserving control over decision-making and investment strategy.
Family members or discretionary trusts may hold “growth” (non-voting) shares, enabling intergenerational planning without relinquishing authority from founders.
Tax Efficiency
FICs pay Corporation Tax (currently 19%–25%), which is typically lower than personal income tax or dividend tax rates.
Investment income such as dividends, received by the FIC is exempt from Corporation Tax.
Mortgage interest is fully deductible, unlike in personal ownership structures.
Capital Gains Tax (CGT) vs Inheritance Tax
Transferring assets into a FIC may trigger a CGT liability — up to 24% but this can be worthwhile if it means avoiding a future Inheritance Tax charge of 40%.
With proper planning, families can lock in the lower CGT rate while removing future asset growth from the founder’s estate, delivering significant long-term tax savings.
Key Considerations
To maintain FIC effectiveness, families must consider various aspects and the associated costs, including:
Corporation Tax Compliance: FICs must submit corporation tax returns and maintain statutory records.
Inheritance Tax Planning: Structure shareholding and gifts to maximise PETs and minimise IHT.
Record Keeping: Proper documentation (board minutes, share registers) is essential to prevent scrutiny.
Tax Considerations in International Contexts
For international clients, the tax treatment of FICs hinges on jurisdictional tax laws. Key issues include:
Tax residency of the FIC: Located in a jurisdiction with beneficial corporate tax and treaty networks can optimise tax outcomes.
Controlled Foreign Company (CFC) Rules: Many jurisdictions impose restrictions on subsidiaries or passively held entities, necessitating careful planning.
Dividend and exit taxation: Cross-border dividends and share transfers may attract withholding taxes or other levies depending on treaties and local law
A FIC is a powerful planning tool offering the perfect blend of control, tax efficiency, and succession planning. When used wisely, even Capital Gains Tax can be leveraged to deliver substantial long-term Inheritance Tax savings.
Lawrence Grant LLP, Chartered Accountants provides audit, accounting, tax, business advisory, and cross-border tax advice. They are focused on providing business solutions to clients to enable them to grow their businesses both in the UK and overseas. In an era of digital transformation, the firm offers a selection of cloud and digital software solutions using AI technology.
GGI member firmLawrence Grant LLP, Chartered AccountantsLondon, UKT: +44 20 8861 7575
Advisory, Auditing and Accounting, Fiduciary & Estate Planning, and Tax
Alan Rajah is the managing partner of Lawrence Grant LLP. He is involved in all areas of general practice, specialising in cross border tax planning, due diligence, mergers and acquisitions and inheritance tax planning. His client portfolio includes UK and overseas companies and individuals.Alan is the Global Chair of the GGI International Tax Practice Group (ITPG). Contact Alan.
