Out-Law Guide 1 min. read
15 Nov 2018, 10:40 am
This guide was updated in November 2018
A FIC is a private limited company created for wealth accumulation and family succession planning. It can invest in cash, property or shares. The FIC usually has bespoke Articles of Association and a private Shareholders' Agreement which is used to control the transfer of shares inside and outside the family.
Typically parents provide funds either by subscribing for shares or providing loans to the company. The class of share is generally used to differentiate between the generations, the parents having voting shares and their children only economic rights. The FIC can be used to reduce the parents' wealth, without any immediate inheritance tax charge whilst allowing the parents to retain some control.
The parents are usually directors but the children can be involved in the investment decisions of the business, which can also be used as a tool to educate them. The directors will determine when dividends are paid and will make general management decisions of the company. If family members are employed by the FIC, a salary can be paid, subject to the usual rates of tax and NIC.
The company will pay corporation tax on its income and capital gains (currently at 19%, falling to 17% from 1 April 2020). Most dividends received by a company are exempt from tax, however it is beneficial not to invest in foreign companies in jurisdictions where dividends are subject to withholding tax as this would be a real cost.
Shareholders are taxed at various rates on dividends after the £2,000 allowance, from 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate taxpayers. Capital gains tax (currently at 20%) will apply to the individuals on the sale of their shares or on the eventual winding up of the company.
FICs may be attractive to the following: