Family Investment Companies (FIC) as an Inheritance Tax solution
The recent Budget has certainly set the cat amongst the pigeons as far as Inheritance Tax reliefs is concerned. Of particular note is the change announced to Business Property Relief (BPR). This change removes the previous 100% relief available for trading businesses, which effectively resulted in any trading business being excluded from an individual’s estate on their death. This therefore now creates potential Inheritance Tax liabilities for business owners as we move forward from here.
11th December 2024
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Stuart Grimster See profile
Property and construction businesses are impacted in a similar fashion to many other hard-working industries. Those deemed trading may now not enjoy the same beneficial advantages that Business Property Relief (BPR) in its pre-30 October form brought. Of course, for some property ownership businesses, that pre-30 October position was not relied upon anyway with those businesses deemed as ‘investment’ in nature.
So, all owners of property and construction businesses now need to give thought to whether the value of their business might now bring an Inheritance Tax liability on their death.
It is now more important than ever to give Inheritance Tax planning much earlier consideration. With proper planning, much of the hard-earned growth in value of your business can be retained within your family for future generations to enjoy, rather than a large proportion of it needing to be passed over to HMRC in the form of Inheritance Tax.
One such plan may include use of a ‘Family Investment Company’ (FIC), which offers a strategic solution to mitigate Inheritance Tax liabilities.
Ownership structure
FICs allow for flexible share ownership structures. This enables the transfer of value to future generations while the current generation (e.g. parents) retains control and direction of the company.
Trust integration
FICs can be combined with trust arrangements, further optimising Inheritance Tax benefits in specific situations.
Reduces Inheritance Tax
By transferring ownership to future generations gradually, FICs reduce the overall value of the estate subject to Inheritance Tax upon the owner’s death.
Maintains control
Current business owners can maintain control and decision-making power within the company while passing down value to the next generation.
Flexibility
FICs offer adaptability through various share classes and trust structures, allowing tailoring to specific family needs.
Early planning is crucial
Proactive Inheritance Tax planning is more critical than ever due to recent changes.
Expert advice
Consulting with professionals specialising in Inheritance Tax and company structures is essential to design an effective FIC strategy.
The key to Inheritance Tax planning now is to consider it earlier than has ever been required before. For any property and construction related business, the use of the right company structure as part of your Inheritance Tax plan could help save tens of thousands of pounds.
FICs offer a powerful tool for property and construction business owners to mitigate the impact of recent Inheritance Tax changes and ensure wealth preservation for future generations. Early planning and professional guidance are crucial to maximising the benefits of this strategy.
At Old Mill we have tax planners who specialise in the property and construction industry, if you would like to discuss family investment companies or any other tax planning please get in contact, click here…