Family investment companies are growing in popularity, especially with high-net-worth individuals seeking to protect family wealth. While trusts have traditionally been the favoured way to protect family wealth, some potential tax disadvantages have seen increasing numbers of individuals favour family investment companies, which can offer greater tax savings and enhanced flexibility. While trusts still remain an effective way to preserve family wealth, for some high-net-worth individuals, a family investment company, sometimes in conjunction with a trust, can offer greater benefits. Graysons’ team of private wealth advisors in Sheffield and Chesterfield answer some of the most common questions regarding family investment companies.
What is a family investment company?
A family investment company is a UK private limited or unlimited company that can hold family assets and help protect family wealth. Designed as a long-term investment vehicle, they are a bespoke structure, governed by a shareholders, or partners, agreement to suit the individual requirements of families and are a popular alternative to more traditional family trusts. The family investment company is run by its directors – usually the founders and parents – with family members, such as children and grandchildren – owning the shares. The directors will have voting rights as to how the company operates but don’t have rights to the capital. However, the structure of a family investment company will enable the directors to still accumulate wealth while also maintaining control of any assets held by the company, including how and when beneficiaries can access any assets. Cash, investments and property can all be held in a family investment company. For high-net-worth individuals, setting up a family investment company can offer several benefits. One of the key benefits is that a family investment company is tax-efficient, for example, helping to mitigate inheritance tax, making it a tax-efficient way to pass on wealth.
How do I set up a family investment company?
If you wish to set up a family investment company, you should contact an experienced private wealth advisor. They will assess your financial and business situation and advise how best to protect wealth for the future.
How do I register a family investment company in the UK?
The first step to registering a family investment company in the UK is to work with an experienced private wealth advisor, such as Graysons’ team Sheffield and Chesterfield solicitors. They will advise on the correct structure of the family investment company, ensure you have all the correct supporting documents, and then register the family investment company with Companies House.
What are the benefits of setting up a UK family investment company?
There are several benefits to setting up a UK family investment company for high-net-worth individuals. These include:
- Creating an effective vehicle in which to pass on wealth to future generations
- Protecting assets, for example, a Shareholders Agreement can outline what happens to any shares in the event of a divorce or death
- Mitigating inheritance tax, preserving wealth for future generations
- Saving tax, including paying the lower level of corporation tax on profits
- Maintaining control over investment decisions, including how and when shareholders will benefit from assets
What are the tax benefits of a family investment company?
There are several tax benefits of establishing a family investment company, including mitigating inheritance tax and paying a lower tax rate on profits from investments. For example, the family investment company will pay corporation tax on any profits made rather than the higher income tax rate. Additionally, any capital gains tax will be charged at the corporation tax rate, rather than main capital gains tax rate. Business and management expenses are also deductible for corporation tax purposes. Finally, if you maintain no beneficial interest in the company, any money or property transferred to beneficiaries will not be subject to inheritance tax.
What are the risks and disadvantages to setting up a family investment company?
One of the main risks of setting up a family investment company is that it may be impacted by future changes to tax laws by HMRC. For example, future changes to corporation tax may create inefficiencies in the future. Reviewing your family investment company’s structure regularly with an experienced private wealth solicitor can help ensure you keep up to date with any regulatory changes and ensure the company runs in the most tax-efficient way.
Additionally, setting up a family investment company can be costly compared to other family wealth structures, such as family trusts, as they require an experienced team of private wealth advisors.
Family investment company vs trust
Both a family investment company and a family trust are useful structures in which to protect family wealth. Trusts are a legal vehicle enabling the transfer of assets from the settlor or trustee to another party, known as the trustee. Depending on what you want to achieve, there are several different types of trusts, with almost all enabling the trustee to control how funds are used and managed. Like family investment companies, trusts can also help lower inheritance tax. A family investment company shares many of the same attributes of a trust regarding flexibility and control. However, a key family investment company vs trusts distinction is that directors of a family investment company can change the company’s structure over time and also enjoy a bigger benefit from the company. In some scenarios, a family investment company can be more tax-efficient than a trust. An experienced private wealth advisor, such as Graysons’ Sheffield and Chesterfield solicitors, will be able to advise on whether a family investment company or trust is right for you.
Why should I use a solicitor to help set up a family investment company?
Family investment companies are complex arrangements that require the expertise of a highly trained private wealth specialist, able to determine whether a family investment company is the best arrangement to protect your wealth. An experienced private wealth advisor will offer their expertise and guidance in drawing up the company’s articles of association and shareholders agreements to ensure there is no ambiguity. This is vital to ensuring your wishes will be carried into effect, giving peace of mind that wealth is protected for future generations.
How can Graysons’ solicitors in Sheffield and Chesterfield help?
Graysons’ solicitors in Sheffield and Chesterfield are dedicated to helping high-net-worth individuals protect their family wealth. Our highly specialised private wealth team offer a bespoke service, including effective and tax-efficient wealth planning solutions for those who wish to protect their wealth for the future. If you want to learn more about setting up a family investment company, then contact our Sheffield and Chesterfield solicitors today.