What assets can a Family Investment Company (FIC) hold?

Key takeaways

• A FIC is simply a type of company, so as a matter of law it can hold virtually any asset class, including cash, loans, shares, investments, property, and interests in family businesses.

• UK residential property should generally be avoided within a FIC structure unless it is let to a third party on a commercial basis, due to potential charges under the Annual Tax on Enveloped Dwellings (ATED) and higher rates of Stamp Duty Land Tax (SDLT).

• FICs can be used to make investments in family members' entrepreneurial ventures, providing seed capital whilst maintaining formal investment structures that benefit the wider family.

• Professional advice is essential when structuring FIC assets to ensure the arrangement works for the individual and future generations, whilst avoiding unwanted tax costs.

FICs can hold almost any asset: understanding the legal flexibility

As a matter of law, a FIC is simply a company, and it can therefore hold anything which any other company can hold. This most frequently includes cash, loans, shares, investments, property, and interests in a family business. Broadly, the position is extremely flexible, allowing the FIC to act as a wrapper for most investments which an individual wishes to contribute to the company or wishes the company to invest in. 

However, there are certain asset classes where care needs to be taken to avoid additional tax charges.

Why UK residential property requires caution in a FIC structure

A FIC is not an appropriate vehicle through which to hold UK residential property, unless it is let to a third party on a commercial basis. This is because, in such a scenario, there would be charges under the Annual Tax on Enveloped Dwellings (ATED), which, depending on the value of the property, can be substantial. There are also higher rates of SDLT (17% from 31 October 2024) on purchases made through a company, subject to any reliefs available. Accordingly, those considering a FIC structure should take particular care when contemplating the inclusion of residential property assets.

Using a FIC to invest in family businesses and encourage entrepreneurship

One type of investment which is of interest to many families is the ability of a FIC to make investments in family businesses. The value held within the FIC often represents a significant proportion of the family's wealth, and part of that capital can be utilised as seed funding to encourage and kick-start the next generation with their own entrepreneurial ambitions. Rather than providing a hand-out or outright gift, families may wish to position this support as a formal investment.

This approach has two key advantages. Firstly, by structuring the arrangement as a formal loan or equity investment, the family member who wishes to set up a business is required to justify the proposal with a robust business plan and forecasts. Some families will require the aspiring entrepreneur to prepare a business case for independent directors on the board to properly stress-test, providing rigorous scrutiny in a safe and supportive environment. Secondly, if the business performs well, the FIC, and by extension the wider family, also participates in that upside.

Tailoring FIC structures to suit individual family goals

This sort of investment will not be relevant for all families, but it showcases the flexibility inherent in a FIC and how the structure can be tailored to the individuals involved and their goals and aspirations for the family's wealth. FICs offer a great deal of flexibility not only in their corporate structure but also in the assets which they can hold. As noted above, care does need to be taken, particularly around property assets, to avoid unwanted tax costs. By working together with other professional advisers, it is possible to put in place an asset structure which works for the individual and for future generations.