WHEN families and high-net-worth individuals are deciding how best to pass money, assets, property and other long-term investments to future generations, a common question comes up.

Whether it is possible to benefit from and protect assets now, while ensuring they stay in the family when the time is right?

This has made FICs a useful tool in estate succession planning, for those who want to safeguard their wealth for their family.

An FIC is a company that invests rather than trades, and the investments frequently consist of shares and equity portfolios or property.

Articles of association and a shareholders’ agreement are drafted to meet the specific needs of the family.

In addition, different classes of shares can be distributed to family members that determine voting rights, entitlement to income and rights to capital should the FIC be wound up, with the founder having the option to retain all voting shares.

One reason people might us an FIC is that assets and wealth are protected in the event of a divorce.

This is because FICs are generally beyond the reach of family courts and its articles of association can restrict the transfer of shares to non-family members and spouses.

The control of an FIC rests with its directors, who determine what investments the company makes and the dividend it pays shareholders.

A major attraction is FICs are tax efficient. No lifetime inheritance tax (IHT) charges arise on transferring wealth and assets into an FIC.

This is a key benefit over trusts, which are now subjected to a 20per cent initial IHT charge if the amount transferred into the trust exceeds the individual’s available nil rate band of £325,000.

With an FIC, if the founder survives seven years after gifting shares in the FIC to family members, the value of the gift will fall outside the estate of the founder for IHT purposes.

Crucially, income and gains are taxed at the corporation tax rate in an FIC, which is significantly lower than income tax and capital gains tax rates on trusts.

Finally, FICs also offer a degree of privacy because it can be structured as an unlimited company meaning there is no requirement to file publicly available annual accounts with Companies House.

However, FICs can be complex so it’s important to seek professional legal and financial advice to maximise the benefits, avoid tax issues and structure it in a way that meets the specific requirements and objectives of the family, both now and in the future.

* Haroon Qayum is from LCF Law’s personal law team in Bradford.

He advises families and individuals on all aspects of private client law. He is a member of the highly regarded Society of Trust and Estate Practitioners (STEP) and holds the professional body’s advanced certificates for Advising Family Businesses and Cross-Border Estates.

Contact Haroon by emailing haroon.qayum@lcf.co.uk or calling (01274) 848 800.

LCF Law is an award-winning full-service law firm, which operates regionally, nationally, and internationally, with more than 125 people and 25 partners across offices in Bradford, Ilkley, Leeds and Harrogate.

Visit lcf.co.uk

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