First, people often generate good returns and build a lot of cash in their trading company. Once there’s significant capital in the company it could be regarded as an investment company rather than a trading company and therefore be liable to inheritance tax.

If a property portfolio is held in a company, it will also be regarded as an investment company and will be liable for inheritance tax.

If you take the shares of your existing company and transfer them to a NEW Family Investment company, the Capital Gains Tax will be payable on the transfer. To avoid that, it’s better to change the existing company into a Family Investment company.

The need will arise where existing investment companies will have to be changed in order to avoid serious inheritance tax issues.

A Family Investment company is effectively a limited company with changes to the Article of Association to make it bespoke and a very strong shareholder’s agreement.

By changing the existing company into a Family Investment company, you can keep control of the company while giving the shares away either directly to your children or into an Employee Benefit Trust to get it out of your estate immediately.

The cost of changing an existing company is no greater than the cost of setting up a brand-new Family Investment company. You will essentially be paying for all the legal work around it.

It is possible to set up subsidiaries in a Family Investment company for different family members and split the company up. If you have property in your company, we nearly always recommend a subsidiary company to keep the risk separate and if you have a trading company, you can split out the trading element from the investment element.

Setting up A FIC needs experienced help and advice so please contact us if you believe this may be useful for you.