FICs attempt to mirror the advantages of discretionary trusts and offer the founder a means to transfer value to other family members while still exercising an element of control.
There are several reasons for the popularity of FICs:
- Changes to the taxation of trusts made them less attractive for holding family wealth. If appropriately structured, FICs can offer similar benefits but without the restrictions applying to trusts, for example, the inheritance tax charge of 20% on contributions in excess of the trust settlor’s available nil rate band.
- The divergence between the rates of tax applying to individuals and trustees (up to 45%) and companies (currently 19%) has provided a further spur towards incorporation and holding family wealth with a family investment company.
The potential benefits of FICs extend beyond taxation:
- The directors control the company, including its company investment decisions, the timing and to whom distributions of profits are made. It is therefore not necessary for parents, for example, to retain a majority shareholding to continue to exercise control.
- FICs can provide a measure of protection against the dissolution of family wealth on divorce. For example, the company’s articles can be drafted in such a way as to prevent the transfer of shares outside the family. Further protection against the transfer of shares outside the immediate family such as the requirement for shareholders to enter into pre-nuptial agreements could be included in a shareholder agreement.