Growth and income shares can be set up for minors – income shares are when the money is distributed via dividends and growth shares are when capital of a company is allocated to those growth shares to potentially be realised as capital gains tax further down the line.

Who makes the gifts of the shares has a huge impact upon the tax liability.

The FIC is set up by parents of the minors

Firstly, let’s cover the gifts into FICs made by parents. If income or capital gains is passed to minors by their parents, that money will be caught under the Parental Settlement Rules and taxed as if it was the parents’ money. The rules basically stipulate that you are generating income for your own children and therefore the income or realised capital gains is classified as if it belongs to the parents themselves.

Parents can pass up to £100 of income in any given tax year to children without tax arising on the parents but it’s such a small amount as to be insignificant.

Setting up income or growth shares to be passed to your children can be done provided the capital gain is not realised when they are minors or income is not generated while they are minors.

When the FICs are set up certainly we do set up income shares for minor children and also growth shares, but we advise our clients to not realise any money from those assets while their children are under 18.

We recommend that you wait until your children are over 18 before generating any company-generated income to their shares.

Actually, it’s not a bad strategy, because if you want to fund your children’s university fees you can let the money grow in growth shares or income shares over time and start only paying it out to them once they are over 18.

The FIC is set up by grandparents of the minors

Secondly, what about gifts into FICs for grandparents and setting up shares for grandchildren or, in some cases, for nephews and nieces and other family?

Once again, income shares and growth shares can be set up for minor children by their grandparents. In this case the income and growth can be actually distributed while the grandchildren are minors.

There is no risk of being caught under the parental settlement clause. Grand parents paying out money to their grandchildren via a family investment company using dividends for income or capital gains from growth shares is absolutely fine.

Itis a very good strategy because it means that the parents themselves don’t have to find the money. So if, for example, a private school is costing £10,000 per year, the grandparents could set up a Family Investment company and the assets from that company can generate an income stream to pay directly to the school for those education fees.

In actuality, the money can be used for anything – for the children’s holidays, for their clothes, for their food, so in a way grandparents can be helping their children out by paying for costs that arise on the grandchildren.

All advice around FICs is complex and so experienced advice should be taken – callus if you need help in this area.