By the end of this parliament, the UK coalition government will have increased taxes almost 300 times, reports The Telegraph. Many of these tax hikes are related to alcohol, VAT, income, vehicles and a range of company levies.
In addition, increases in Inheritance Tax are making succession planning more difficult. Thus, higher taxes – the result of government’s drive to combat the UK’s huge deficit – are leading many high-net worth individuals to find more efficient means of structuring their tax investments. One such cost-effective, simple solution for those based in the UK may be the Family Investment Company.
A Family Investment Company (FIC) is simply a private investment company whose shareholders are family members. The Memorandum and Articles of Association of such a company are drafted to suit the family’s specific and unique needs – for example, defining how specific family members will benefit with regards to voting rights, income and/or capital. Family Investment Companies can be limited or unlimited.
A Family Investment Company is taxed according to corporation tax rates, which is considerably lower than personal income tax rates. Currently, corporations are taxed at 28% (decreasing to 24% from 1 April 2014) and income tax at 45%. What’s saved on tax can be reinvested to further wealth creation. Other tax benefits include:
What about Inheritance Tax (IHT), you ask? While trusts have traditionally been the vehicle of choice for passing down family wealth, currently the Family Investment Company offers some attractive benefits over the trust in this regard:
Remember, though, that (except in certain circumstances), inheritance tax will be payable if a donor holds shares in a Family Investment Company upon his or her death. The bigger the value of the shareholding, the more inheritance tax is payable (which, conversely, means that smaller holdings are discounted).
Unfortunately, there is no ultimate solution to corporate or personal taxes! The cons of a Family Investment Company include:
Have you had experience with a Family Investment Company? How did it work out for you and your family?