There is a misconception that “Family Investment Companies” are complicated and are only relevant to rich families. However, this is clearly not the case !
A Family Investment is simply a company where the shares are held by family members. It’s possible that one can do weird and wonderful things with the share capital, but this is not always necessary.
Here’s an example . . .
Jane and John are concerned about the Inheritance Tax due on their second death. They are in their 60s and they hold an investment portfolio worth £700,000. They did not want anything too complicated with regards to tax planning so the following simple advice has been given:
STEP 1
Sell the portfolio to a newly setup company for £700,000. This amount is left outstanding by the company as an IOU (debt) which can be drawn down tax-free.
STEP 2
The company is worth nothing at the start as it holds an asset and liability of £700,000.
STEP 3
As the shares were acquired fairly recently, limited capital gains arise on the disposal of the portfolio.
STEP 4
If they gift their shares to their children, this would not have any tax implications as it is a gift of no value.
STEP 5
The value of their asset is at £700,000. Any future growth will be under the company and will be outside of their estate.
Weird & Wonderful Bit . . .
We could make small adjustments to this so that Jane and John could regain control of the company. Also, if they wanted to make more inheritance tax savings, Jane and John could make gifts of their IOU from the company to their children. This would drop outside their Inheritance Tax estate, if they survived seven years from the date of the gift.