Book Review: Family Investment Companies

 In Book Reviews for Private Client practitioners

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Family Investment Companies by Deborah Clark published by Bloomsbury Professional  |  ISBN 9781526512574

PurposeBook review Tolleys Taxwise II

This book is intended to provide an overview of all the key issues to consider when deciding whether a Family Investment Company (FIC) is a suitable vehicle to help with an individual’s estate planning. It is part of a new series by Bloomsbury Professional called ‘Tax Insight’ which emphasises the practical issues facing a practitioner. The author is a Barrister, chartered tax adviser and a partner with Mills & Reeves LLP so the book reflects her expertise on FICs given she has designed and advised on the use of them for over a decade.

Content

There are 19 punchy and concise chapters covering Articles of Association, Directors, Share Capital, Share Transfers, Shareholders Agreements, Governance, Employees, Taxation, Dividends: general, shareholder position and settlements legislation; Funding a FIC, Other tax issues, Use of trusts, Protection, Unlimited companies and privacy; Winding up a FIC and some examples of structures used.

FICs have become popular due to the cost of transferring surplus wealth into trust since 2006 (20% on entry above the nil rate band) and the high rate of income tax on discretionary trusts (45%) which would give trustees control over family wealth. By contrast, subscribing for shares in a company and arranging for some of those shares on incorporation to be allocated to their children does not incur an entry charge for IHT – and the value drops off the transferor’s IHT clock if they survive seven years; plus corporation tax is charged on company income and gains at only 19%.

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The content of this book explores all the practical considerations as to what is involved in offering the option of a FIC rather than a trust as a vehicle for transferring and managing family wealth.

Structure & Layout

This is a short book of just 53 pages so the content of each chapter is barely a page or two. This has the effect of providing a clear focus for the subject of each chapter and makes finding the relevant point the reader wishes to check very easy. However, the book lacks examples of some of the key points made on things like the careful wording required of bespoke Articles and Shareholder Agreements.

Some of the examples on structure of FICs are most helpful and others leave you wondering about how effective the structure is for example, a transfer of a commercial property to an FIC is achieved by selling it at market value to the company. This incurs a capital gains tax charge in the hands of the original owner and a SDLT charge on the company. There is no indication how these sums are to be met – the structure focuses on the getting the value of the property into the FIC and its value into the hands of the transferor’s children. In a particular case this might be a cost-effective exercise but, in many cases, the other tax costs would outweigh the potential IHT savings.

The chapter on Other Tax Issues reminds the reader of the things which can upset planning and covers the Close Companies Rules, GAAR and DOTAS whilst reminding us that there is nothing contrived or abnormal about incorporating a company.

Chapter 15 on the Use of trusts explains that the winning combination for a client may indeed be a blend of both a discretionary trust and a FIC.

Tools

The book contains several examples and a whole final chapter dedicated to exploring the different structures which could be used in a FIC. The book would benefit from more tools to help the practitioner such as checklists to obtain appropriate instructions or examples of Shareholders Agreements or Articles of Association.

Clarity & readability

The writing is crisp and readable. It is a useful overview of the world of FICs.

Relevance to practitioners

For those practitioners new to FICs this is an ideal first read to welcome you into the world of companies being used as an investment vehicle to manage family wealth.

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