Family Investment Company

valueman1

I have been advised to set up an FIC to avoid IHT and pass money on to my kids.   There seem to be advantages over Trusts post Gordon Brown. My children are terrible with money so want them to have the money when they are older, say 40.  Does anyone have any first hand experience?

dunstonh

How many millions of pound are you talking about here?  (usually you would be talking multi-million pounds when considering these)
A husband and wife with property and children gets £1m IHT allowance.  So, that is the first million taken care of.

Pensions are not included in the estate.  So, you can hold a couple more million in pensions with good planning (and assumption that higher asset values means more income is available - which may or may not be correct or possibly too late).   

You will have alternative tax to pay and possibly accountant costs depending on structure.  Corporation tax is going up from 19% flat to 19% on first £50k, 26.5% on next £200k and 25% above that.    If you already have a limited company through your business, then 19% band is reduced by 50% on each company.

You is potential for big savings but there is potential for paying more than you need be ignoring alternative options.

There is also the potential that the government will change taxation and you could end up worse off.

Marcon

valueman1 said:

I have been advised to set up an FIC to avoid IHT and pass money on to my kids.   There seem to be advantages over Trusts post Gordon Brown. My children are terrible with money so want them to have the money when they are older, say 40.  Does anyone have any first hand experience?

Who has advised this? If they are a top quality adviser, why are you not comfortable asking for more information from them to allay any concerns you might have?

Looking at your previous questions, you seem to have been asking about all sorts of routes for avoiding IHT, so presumably this is a multi-million pound issue rather than 'just into the IHT bracket'. Mightn't it make sense to get personalised advice from a first rate adviser to whom you have provided all the facts, rather than a few sentences on here with random strangers replying based on virtually no information about your individual circumstances? You've been asking for over two years https://forums.moneysavingexpert.com/discussion/6175938/discretionary-trust/p1 but don't actually seem to have taken any definitive action - and you might be wasting valuable time.

valueman1

Thanks for your replies but none of you have had first hand experience.  Hopefully someone who has will be able to help. I’m divorced so don’t get the couples relief.

Malthusian

valueman1 said:

Thanks for your replies but none of you have had first hand experience.  Hopefully someone who has will be able to help. I’m divorced so don’t get the couples relief.

This is an open Internet forum. The experience of the posters is irrelevant as everyone could easily just make it up. If someone did have an FIC their circumstances would likely be completely different to yours (and they could do more harm than good if they assumed that their experience was relevant to you). 
There is not enough information in your post to usefully comment on whether setting up an FIC does any good or not. 
In itself, setting up an FIC doesn't save any IHT. Giving the shares to your kids might save IHT if you live long enough for the gift to fall outside your estate. But that conflicts with your desire to keep the money out of their hands until 20+ years down the line.

Grumpy_chap said:

Then again, Elon Musk seems to take note of what Twitter followers say...

Bear in mind Elon Musk is a billionaire. He could take the worst financial advice that anyone has ever been given in the economic history of the world, and still be a billionaire afterwards. 

steampowered

Anyone who has been on these forums awhile has seen many, many situations in which people have got badly stung due to amateurish tax planning.

Using companies, trusts etc. to avoid tax can end up with paying more tax than the original tax you were trying to avoid.

Family investment companies are something you should only consider if you have a big estate that's well over the IHT thresholds. If this is the case, you should be taking professional advice.

Remember that if you put your assets into a family investment company, the company will have to pay corporation tax on the profit it makes. Additionally, if you wish to withdraw money from the company to use it for personal uses, that probably means declaring a dividend which triggers income tax. So there is an additional layer of paperwork (company filings, company tax returns) and additional tax liabilities (corporation tax and income tax) which need to be considered. If you mess it up this could outweigh potential IHT savings.

Additionally, the shares in a family investment company would usually be held by your children. As such they would be entitled to a share of the company from day one. This means reduced flexibility and isn't really compatible with your desire to prevent the kids from accessing the money until age 40. It is easy to change your will; it isn't so easy to change the ownership of a family investment company.

valueman1

People have lost millions taking advice from IFAs.  IFAs have demonstrated time and time again that they are self interested and will inevitably recommend the approach that allows them to make the most fees.  Lawyers and accountants will give you plenty of options but no recommendations.  There is plenty of information freely available on the internet and I have read extensively about the pros and cons of trusts and FICs, no-one here has told me anything I don’t already know.  What I came here for was to hear from people who had set up an FIC for themselves had any regrets or were pleased it was something they did and could share any observations.  My estate is way over the IHT threshold but I’m in no rush I have plenty of time. 

valueman1

I believe you can have different share classes to allow you to control dividends without compromising the PET so could delay dividends to my children until they are older.

dunstonh

People have lost millions taking advice from IFAs.  IFAs have demonstrated time and time again that they are self interested and will inevitably recommend the approach that allows them to make the most fees.

A loss in the amount of millions when IFAs transact billions every year is probably acceptable.  That is why the complaints rate is so low against IFAs.   You pay an IFA a fee for the advice.   On something like this it would be the same fee whether you did or you did not do it.   

no-one here has told me anything I don’t already know. 

We know nothing about you and you haven't told us what you do or do not know.    So, what did you expect on such a niche, specialist option?

CKhalvashi

valueman1 said:

Thanks for your replies but none of you have had first hand experience.  Hopefully someone who has will be able to help. I’m divorced so don’t get the couples relief.

If you're talking significant money, you need to get advice.

For traditional investments there is the potential to max out ISAs (which would remain tax free in your lifetime), pensions and gift allowances.

For high incomes and significant risk/reward potential (which is typically fine for smaller amounts in a very large portfolio or the occasional £50/100 for everyone else) you can look at EIS/SEIS, which due to the nature of these investments would normally by exempt from IHT and provide good tax relief upfront.

As someone who is heavily invested in travel and leisure sectors generally, not all businesses will be able to convince HMRC that they are not effectively investment companies due to the services they provide (I'm thinking in particular hotels being treated as an investment company in most circumstances but some aspects may reduce this). A pure investment holding company in traditional investments will not be able to give any IHT relief unless you control the company. At that point for any listed company I'd even consider as an investment you're looking a minimum of £20m.

In addition we could see no legitimate reason to merge everything under a holding company, it removes some flexibility especially when buying expertise with shares and also doesn't give anything that a cross-company financial guarantee can't, but rather keeping the businesses separate was the better option overall.

As above, I take tax and legal advice before getting involved in such investments and don't post on forums. If you're talking the amounts your post implies here I'd recommend you do the same, especially as from the basis of your posts I'm guessing you're a lot wealthier than I am .

Marcon

valueman1 said:

Thanks for your replies but none of you have had first hand experience.  Hopefully someone who has will be able to help. I’m divorced so don’t get the couples relief.

On what basis are you making that assumption? Those of us with first hand experience are well aware of the dangers of commenting on the situation of someone about whom we know nothing, which is why you are being encouraged to get some proper (paid for) advice, where you will benefit from someone who has a full understanding of all relevant facts.

valueman1 said:

People have lost millions taking advice from IFAs.  IFAs have demonstrated time and time again that they are self interested and will inevitably recommend the approach that allows them to make the most fees.  Lawyers and accountants will give you plenty of options but no recommendations.  There is plenty of information freely available on the internet and I have read extensively about the pros and cons of trusts and FICs, no-one here has told me anything I don’t already know.  What I came here for was to hear from people who had set up an FIC for themselves had any regrets or were pleased it was something they did and could share any observations.  My estate is way over the IHT threshold but I’m in no rush I have plenty of time. 

In that case, you should be well able to afford specialist advice - but unfortunately  two things are certain in life: taxes and death, the latter being notoriously unpredictable. You only have to look at the number of posts from people who are distraught because a loved one died without making a will 'because they didn't expect to die' to recognise the truth of that unhappy statement. For your own sake, please get on with it while you can.