Is a Family Investment Company (FIC) still a suitable vehicle for succession planning?

Subsequent operation 

Retention of parental control will be the driving policy in the early years of the FIC but, at some point, you will want to transfer some of the shares to the next generation. One of the simpler types of planning is to transfer non-voting shares to your children, ideally before the shares have significantly grown in value and while your life expectancy is still good. There is no IHT charge if you survive for seven years after the transfer.       

If the relevant assets produce income, the rates of Corporation Tax (although these recently rose, with effect from 1 April 2023, to 25% for companies with profits in excess of £250k per annum) are considerably lower than the marginal rates of personal Income Tax (up to 45%), which would apply if the assets continued to be held directly. You should be aware, though, that if you foresee regular profit extraction from a FIC, the combination of Corporation Tax on profits (including capital gains) and Income Tax on dividends will very likely result in a higher overall tax cost than would apply to simply retaining personal ownership. 

Are FICs future-proof?

If you have enough disposable wealth to justify the set-up and operating costs, there is no doubt that FICs can provide substantial IHT savings, as well as a carefully controlled method of estate planning. Nevertheless, as we’ve seen with family trusts, no succession vehicle is immune to legislative change. 

In this context, HMRC set up a specialist unit in 2019 to investigate the use of FICs in tax planning. In 2021, having found no evidence of widespread avoidance, HMRC concluded its survey without further action. However, there are tried and tested methods of neutralising tax advantages and their redeployment at some point in the future cannot be ruled out.  

Conclusion

If you’re thinking about succession planning, the use of a FIC could be right for you. FICs will not suit everyone and will only justify their costs for sufficiently large estates.  Nevertheless, in the context of the IHT regime for trusts and relatively low corporation tax rates, they continue to be a serious option in any lifetime estate planning strategy. 

For professional advice regarding your succession planning and to discover if a FIC could work for you, please fill in the form below and one of our experts will be in touch to discuss your requirements and how we can help.