Wealth planning is evolving. Trusts were once the go-to solution for passing on wealth, but today’s tax rules make them far less attractive. Taxes on the way in, high taxes on growth, and more taxes on the way out all reduce the value you’re trying to protect.
Family investment companies (FICs) offer an alternative. They allow you to pass on wealth while keeping control and benefiting from lower tax rates. But how do they work, and are they the right option for you?
What is a family investment company?
A family investment company is simply a company set up to manage and invest family wealth. It works like any other company, with shares determining ownership and control. The key difference is how those shares are structured.
Typically, parents hold ‘A’ shares, giving them full voting rights and control over decisions, while children hold ‘B’ shares. These don’t carry any power, but they entitle the next generation to future growth and dividends. This allows wealth to be passed on gradually without giving up control.
How a FIC works in practice
A typical FIC is set up with an initial loan from the parents. For example, £1 million is invested in the company. Over time, as investments grow, so does the value of the company.
The parents can withdraw their original loan at any time without triggering a tax liability. At the same time, the next generation benefits from future growth through their B shares. The structure allows for tax-efficient wealth transfer while keeping full control over how and when distributions are made.
Take control of your wealth strategy
FICs can be an effective way to manage and pass on wealth, but they need careful planning to get right. The structure has to align with your long-term goals, tax position, and family circumstances.
We advise individuals and families on how to set up FICs in a way that works for them. If you’re exploring your options, we can help you understand whether a FIC is the right fit and what the next steps would look like.
