Why Use a Family Investment Company to Avoid Inheritance Tax on Large Estates

If you have assets over £2 million, excluding the value of your main residence, then we may advise that you should look into setting up a Family Investment Company (FIC). At this level UK inheritance tax becomes very expensive. Doing this allows you to pass on your wealth to your children by way of shares in that company.

Arranging a family investment company will allow you to place cash or assets into the company and pass on your wealth free of Inheritance tax but retain control over the assets as a company director during your lifetime. Companies also offer a more effective and efficient tax environment for growth of assets than holding them personally.

A Family Investment Company is a tax-efficient vehicle that enables an individual to pass assets out of their estates for inheritance tax (IHT) purposes while retaining control and protecting them. An FIC is a complicated strategy which is best managed with clients and intermediaries such as accountants, financial planners and wealth managers all working together.

For many people, a trust is the most flexible way to use the lifetime IHT threshold of £325000 per individual will sufficiently mitigate their potential tax liabilities. However, assets worth extra transferred to a trust would be subject to an immediate 20% IHT charge.

Family investment company advantages

  • One of the main advantages of family investment company over a lifetime discretionary trust is the tax regime applicable when the value of a persons estate is over £1 million.
  • FICs can hold an investment portfolio UK company shares. Most dividends received by the UK company from other companies are currently immune from corporation tax. This beneficial nil dividend rates for companies results in an increasing in the growth roll-up of dividend income by deferring taxation until monies are allocated.
  •  One should use a family investment company to avoid inheritance tax on a large estate especially larges property portfolios which would incur large capital gains tax liabilities if the properties were sold or gifted.
  • FIC’s director can choose to take the greater risk from an investment strategy perspective than trustees might be comfortable with as trustees have to abide within trust laws.

Some options to avoid inheritance tax on large estates

  • Making gifs
  • Leaving money to charity.
  • Leaving your estate to a spouse.
  • Maximising your proper IHT allowance.
  • Considering equity release.
  • Taking out life insurance
  • Using a deed of variation.

In order to make the Family Investment Company suitable to operate in a family estate planning context, it is effectively treated as a private limited company with the bespoke articles of association.

The best strategy for a wealthy family with assets exceeding £2 million can often involve combining the structures of the family investment company and a discretionary or a reversionary trust.

Bluebond normally recommends not to rely only on a family investment company. One should furthermore strongly consider the use of maximum investment into Flexible reversionary trusts as well. One should not fully believe in one thing to avoid Inheritance Tax. There are many other options to avoid Inheritance Tax.

Flexible reversionary is one of the best methods to accomplish the InheritanceTax methods.

Family Investment Company-  roles and rights

If the assets currently belonging to the parents, and they can use the company structure to transfer value and responsibility to their children dependent on capital gain tax issues and their own income needs.

For owners of the large property portfolio, this is a goop strategy to avoid Inheritance Tax and also income tax.

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