Family Investment Companies
In these days of hyper-low interest rates it is often very difficult for clients with very large cash reserves to decide how best to invest their money not only for the long-term future of themselves and their families but also in the most tax efficient way. I often come across cases where clients have come into a large cash sum, be it through inheritance or selling a business, and want to undertake inheritance tax planning because they realise that on death a very significant proportion of that cash may end up being taxed at 40% but have limited options as to what to do with the money.
There are, inevitably, a whole range of potential solutions and it is our job as tax advisers to review all circumstances and advise on the best course of action. However, one possible solution that has gained popularity in recent times is the use of a family investment company. Traditionally, inheritance tax advisers would discuss the very laudable option of creating a family trust for the long-term benefit of their children and grandchildren because it allows you to give assets away but retain control through the trusteeship that is created. However, in doing this, the clients then come up against the problem that if more than £325,000 is settled into trust, an inheritance tax charge arises. In the past, this has meant that a client's tax planning options are somewhat limited particularly where they wish to avoid paying this lifetime charge to inheritance tax. For clients who wish to undertake succession planning with cash in excess of this threshold of £325,000 but who at the same time wish to retain control over what they give away, a family investment company can be a good option.
The two most crucial benefits of using a family investment company are that the client can invest an unlimited amount of cash into a company without triggering any liability of tax upon creation but at the same time remove a very significant proportion of value from their estate for inheritance tax purposes whilst retaining control over the entire structure. Perhaps of even more importance however, is that the structure can last indefinitely and can therefore establish a truly inter-generational investment platform for the long-term benefit of the client's family and descendants.
Many clients who use family investment companies go on to invest the cash in a whole range of investment options including commercial or residential property, share portfolios, business property assets and alike. The client is able to retain control of these investments and, indeed distributions amongst the family, by having control of the Board of Directors with appropriate safeguards included within the company's constitution. In time, the structure can also be used to introduce the next generation into the concept of managing large sums of money while still retaining control.
Shares within the company are often distributed amongst wider family members but the structure is such that if anything untoward happens to one of those shareholders such as a divorce then the assets in the company are protected from the divorce courts thereby satisfying one of the main concerns that clients often express when considering succession planning.
In the right circumstances, a family investment company can be an ideal solution, in whole or in part, to what can sometimes appear to be an intractable inheritance tax planning problem and should always be considered alongside all other options. If you would like further information on family investment companies please contact us at firstname.lastname@example.org or call 020 7531 2990