A Family Investment Company (FIC) is a private limited company which is crafted to specifically hold and manage family investments. It offers a controlled environment for wealth preservation, making strategic investment decisions, and planning for inter-generational succession. If you already have a company that’s got a substantial amount of assets – particularly investment assets such as cash reserves, property portfolios or trading profits – then you might consider converting that company into an FIC to boost tax efficiency and improve estate planning outcomes. This article explains how to go about that conversion, the key legal and tax issues to look out for, and whether it’s a pretty straightforward thing to manage on an annual basis.
Why Convert an Existing Company to a Family Investment Company?
Companies that have a lot of retained capital, particularly investment companies and property holding companies, can often face inheritance tax (IHT) liabilities because the capital value of an investment company stays within the taxable estate of the owners. Moving assets into a new FIC structure can help mitigate future IHT liabilities while keeping control over the business and its assets.
There are two main ways to go about it:
- Selling or transferring the shares of the existing company into a new FIC, or
- Directly converting the existing company into a FIC by updating its constitution and governance documents.
The second route converting the existing company is often the preferred option because transferring shares into a new entity can trigger a capital gains tax (CGT) charge on the transfer.
Legal and Structural Changes Required
An FIC is actually the same legal type of entity as any other limited company, but it has bespoke articles of association and shareholder agreements that reflect its role as a family investment vehicle. Converting an existing company into an FIC typically involves:
Amending the Articles of Association
The articles of association are the core documents that regulate a company’s internal operations. They set out how the company is run and how decisions are made. Converting to an FIC requires revising these articles to include provisions that are tailored to your specific needs – for example, to:
- Clarify voting rights and decision-making
- Enable different share classes (if that’s what you need)
- Reflect the role of family members as shareholders and directors
- Make it easy to manage investment income and capital distributions
Drawing Up a Robust Shareholders Agreement
A shareholder agreement is a supplement to the articles and sets out the relationships between family members. It explains things like:
- Who is in control of the company
- How shares are transferred (especially when a family member dies or retires)
- Rights attached to different share classes
- Obligations and restrictions on selling or gifting shares
These agreements are a real key to ensuring that family dynamics don’t lead to governance disputes and that the company can keep on running smoothly across generations.
Tax Considerations
One of the main reasons for converting to an FIC is tax planning – particularly inheritance tax. Because FICs are typically investment companies, the capital shares are still going to be subject to IHT unless they’re given away to family members or held in a trust.
Capital Gains Tax on Transfer
If you transfer the shares of your existing company to a new FIC, you will generally incur a CGT liability on any gains that you’ve made on that transfer. That’s another reason why converting the existing company directly is often more tax efficient.
Inheritance Tax and Share Gifting
Once you’ve set up an FIC, one of the strategies you might use is to give shares to family members or place them into an Employee Benefit Trust. This can reduce the effective IHT exposure on the value of the company over time.
Ongoing Tax Regime
Operationally, an FIC is taxed as a normal limited company. It pays corporation tax on chargeable gains and profits – and the tax is primarily when you sell assets or pay dividends.
Practical Steps to Convert Your Existing Company
In practice, the following steps are often involved:
Assessing Your Current Company Status
First of all, you need to work out whether your existing company holds mostly investment assets or trading operations. FICs are typically suited for investment companies and property holding companies – trading companies may not need to convert unless there are specific estate planning goals.
Getting Professional Advice
Get in touch with tax advisers, corporate lawyers and accountants who have experience with FIC structures. They’ll guide you on revising the company’s governing documents, tax structuring and succession planning.
Revising the Articles and Shareholder Agreement
With professional help, you need to draft bespoke constitutional documents. Shareholder approval is required for changes to the articles – this usually needs a special resolution (75 percent majority).
Filing with Company House
File the revised articles of association, shareholder agreements (if applicable) and other relevant documents with the company registrar.
Structuring the Shares
Consider creating separate share classes to separate voting control from economic benefits if that aligns with your family’s objectives.
Tax Planning
Decide how shares will be held for IHT purposes – this might involve trust structures or giving shares to family members while preserving control for directors.
Is an FIC Easy to Manage on a Yearly Basis?
The short answer is: from an admin standpoint, an FIC is just like any other UK limited company, not a lot of difference there.
Company Running and Reporting
From an admin point of view, an FIC has to do the same things as any other company – that is:
- Hold an annual meeting (as it should),
- Get the accounts and confirmation statement sorted and filed on time,
- Comply with corporation tax reporting and filings,
- Keep all the necessary records and registers up to date.
These are the same obligations as any old limited company – what really matters is the type of assets the FIC is holding.
The Investment Nature of FICs Lowers Day-to-Day Activity
Lots of FICs own investment assets like shares that don’t pay dividends so there may not be a lot of day to day activity going on during the year. This means you might not have to do much in terms of tax reporting until you actually sell those assets.
For example:
- If the FIC owns a property or shares that aren’t generating a lot of taxable income, the corporation tax for that year might be pretty minimal,
- If all the FIC owns is capital assets, and no dividends are being paid, there may be no corporation tax due until you sell those assets.
Governance and Decision-Making
Year on year, management tends to focus on:
- Checking in on how the investments are doing,
- Making sure the company is complying with all the corporate governance rules,
- Deciding on how best to invest or distribute the money.
Of course, if the FIC has lots of shareholders and different classes of shares, things can get a bit more complicated but that’s not unique to FICs, that’s just good family company practice.
Getting Professional Help and Costs
While the basic admin tasks are pretty similar to any limited company, owners often need to hire experts to help with:
- Annual tax planning,
- Succession and estate planning,
- Investment performance reviews.
Of course, that can add to the ongoing costs, but it also helps you get the most out of the FIC structure.
Conclusion
Converting a company you already own into a Family Investment Company can be a top way for high-net-worth families to keep their wealth intact, manage their investments together, and plan for the future. By sorting out the company articles, getting a solid shareholder agreement in place, and doing some thoughtful tax planning, you can turn an existing investment company into a bespoke family vehicle and avoid having to pay capital gains tax on share transfers.
In practice, an FIC is managed in much the same way as any other limited company. How easy it is to setup FIC & run an FIC really depends on what kind of assets it’s holding and how much complexity you’re looking to introduce. For families with mainly passive investment assets, the administrative stuff is pretty low-key, and professionals can usually handle the compliance bits and pieces with ease.
If your goals include making sure your money passes safely to the next generation and keeping control of the business, then exploring the possibilities of building or converting to an FIC is definitely worth looking into. If you want some more specific advice and a hand with the paperwork, talk to some specialists who know their corporate and tax stuff.
Frequently Asked Questions
Can an existing company be converted into a Family Investment Company (FIC)?
Yes, an existing company can usually be converted into an FIC by amending its articles of association and governance structure. This avoids the need to set up a new company and may prevent unnecessary tax charges.
Is it more tax-efficient to convert an existing company rather than create a new FIC?
In many cases, yes. Transferring shares into a new FIC can trigger Capital Gains Tax, whereas converting the existing company directly often avoids an immediate CGT liability.
What should be considered before converting a company into an FIC?
You should assess the type of assets held, inheritance tax planning objectives, and future succession plans. Professional legal and tax advice is essential to ensure the structure is implemented correctly.