What is a FIC?

FICs, or Family Investment Companies, are increasingly used by families as part of their wealth structuring. The term FIC is bandied around a lot within the industry and might suggest a complex legal beast. The term, however, simply refers to a private company used to hold investments and other assets for a family. There is no legal definition of what makes a FIC, and laws and tax applicable to a FIC are no different from those that would apply to any other type of company. There are, though, various common traits these vehicles tend to have in common and common reasons why these vehicles are used. 

What are the advantages of a FIC?

FICs are useful vehicles for succession planning. The shareholders of a FIC will usually be family members and are generally set up by parents or those with wealth to manage investments and pass wealth down to younger generations. 

FICs are highly flexible and can be adjusted to fit each family's particular needs. For instance, it is common for FICs to be set up with multiple share classes to allow senior family members to have the control rights relating to the business and assets, but with other family members having the economic rights. This can be a way of passing the benefit of wealth onto the next generation, without relinquishing control. 

In general, a FIC will also take advantage of lower corporate tax rates on its investments compared to personal tax rates. The rates of tax corporations to pay on profits are lower than the top rates of personal income tax and may result in larger profits being available to reinvest in other assets. Payments can be made to shareholders via dividends which also have tax advantages and give greater flexibility compared to personal ownership. Expenses incurred by the company in managing its investments may also be entitled to corporation tax relief. These tax advantages can be particularly helpful where long term ownership of assets is envisaged. FICs can also be combined with other tax efficient share schemes, such as growth shares.

Some readers will note that some of the rationale for setting up a FIC is similar to the traditional rationale for setting up a trust. FICs are becoming increasingly popular relative to trusts, however, given they can be more simple to run than a trust and in light of the changes to the taxation of trusts that have taken place in recent years. Generally, wealth creators are also more familiar with company structures and accordingly may be more attracted to setting up a FIC compared to a trust. 

How do I set up a FIC?

A FIC will usually be set up as a private company (either as a limited company or an unlimited company). A FIC can be set up easily at Companies House and, as with all private companies, a FIC needs at least one director, and shares will usually be issued to shareholders at nominal value. If there is an existing family trust, these can also be used to hold shares in the FIC.

Following the incorporation of a FIC, the company will need to be funded. This is usually done by way of a loan to the FIC from the person setting up the FIC. 

Privacy and reporting requirements

A FIC based in the UK will be required to make the usual Companies House filings that a private company needs to make. Where the FIC is a private limited company this means that annual accounts and the company's articles will be publicly available at Companies House, together with details of its PSCs (i.e. persons with significant control) and annual filings relating to the identity of its shareholders. If the FIC is established as an unlimited company, subject to various exceptions, company accounts do not have to be filed at Companies House.

When is a FIC not appropriate?

FICs will not be suitable for every family or situation. There are costs involved with the set up and running of a FIC, together with the various company law requirements and annual Companies House filings. Some investments may also be better held outside of a FIC to take advantage of tax reliefs, such as the Enterprise Investment Scheme (EIS) and Business Property Relief (BPR). 

There can also be tax inefficiencies where profits of the company are paid out and can mean that profits are subject to double taxation relatively to holding the investments directly. It is generally more tax efficient for a FIC to reinvest profits rather than returning these profits directly to shareholders.

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