I’ll be talking about family investment companies, how they work, their benefits, and how you can use them to optimize your wealth planning and tax strategies.
What Are Family Investment Companies?
Family Investment Companies
A family investment company is essentially a regular limited company, but with a structure tailored for families to invest collectively. These companies are often used for property investments or other wealth management purposes. They provide an effective way to reduce inheritance tax exposure while keeping assets within the family.
Key Features of Family Investment Companies
Structure and Setup
A family investment company is registered with Companies House like any other limited company. It requires annual accounts, confirmation statements, and corporation tax filings.Share Structure
The unique aspect of these companies lies in their share structure. Unlike a regular company where shares are uniform, a family investment company often uses multiple share classes to achieve specific tax and inheritance objectives.Freezing Value
A significant benefit is the ability to “freeze” the company’s value. For example, parents can retain shares that only grant income and voting rights while transferring growth shares to the next generation or a trust.
The Benefits of Family Investment Companies
Why Choose Family Investment Companies?
Tax Efficiency
Family investment companies help minimize inheritance tax (IHT) by shifting future growth to the next generation. This approach protects family wealth and reduces tax liabilities.Control
Despite transferring assets, the older generation retains control through voting rights and income shares. This ensures continuity in decision-making.Asset Protection
Using trusts alongside family investment companies safeguards against divorce or disputes, keeping assets secure within the family.
Example:
Suppose you have a property portfolio worth £2 million. By creating a family investment company and freezing its value, future growth of, say, £2 million over 10 years can be allocated to the next generation, bypassing inheritance tax on that growth.
How to Set Up a Family Investment Company
Steps to Create a Family Investment Company
New Setup or Existing Conversion
- You can start a family investment company from scratch, injecting capital or transferring property portfolios.
- Alternatively, an existing limited company can be converted into a family investment company by restructuring shares.
Utilize Trusts
A trust adds an extra layer of protection, ensuring assets are distributed according to your wishes. Trustees, including professionals, can manage income and distributions.Consult Professionals
Setting up a family investment company isn’t cheap, typically starting at £10,000. However, the potential savings in inheritance tax often outweigh this initial cost.
Family Offices Investing in Startups
Another exciting trend is family offices investing in startups. These entities, managing family wealth, are increasingly diversifying their portfolios by funding innovative companies.
Why Invest in Startups?
Startups offer high-growth potential, aligning with the long-term goals of family offices. This trend has grown significantly in recent years as families look to diversify beyond traditional investments.How to Leverage This Trend
If you have a family investment company, partnering with startups can be a strategic move. It diversifies risk while potentially offering substantial returns.
Conclusion
Family investment companies are a powerful tool for wealth preservation, tax planning, and collaborative family investments. Combined with strategies like family offices investing in startups, they unlock tremendous financial potential for future generations.If you’re interested in exploring this further, book a consultation today.
