Can I convert an existing company into a family investment company?
It is possible to convert an existing company into a FIC. Our advice is to do it sooner rather than later in order to avoid your IHT problem getting any worse.
Can I convert an existing company into a FIC?
The answer is yes. We are currently setting3-4 of these a month.
Landlords and people with Section 24issues, where they get only 20% tax credit for mortgages, have been setting up limited companies for a long time under the advice of their accountants. Unfortunately, that doesn't go far enough and, although it is correct advice for the avoidance of income tax issues around property portfolios, it doesn't solve the inheritance tax problem that most landlords have.
Eventually, you have to give the shares of your company away for inheritance tax purposes, if you no longer want it in your estate. When you give the shares away any accumulated Capital Gains tax is immediately payable and you're not entitled to any of the capital. Worse still on giving up the shares under normal limited company rules you don't control the company anymore.
Why should I convert an existing company into a FIC?
It’s important to understand that in a Family investment company even if you give your shares away, you can still retain control whatever the company does as you remain a director for your lifetime. A Family Investment Company gives you all the income tax benefits of any other type of company plus some significant inheritance tax relief while allowing you to remain in control of your company. That’s why we often recommend a switch of an existing company into a Family Investment Company.
What kind of existing company can I convert into a FIC?
It’s important to note that the term “existing company” excludes a trading company - a trading company would be exempt from inheritance tax provided it was fully carrying out trade. Most people who own companies which are property-based do not own trading companies but investment companies. Can you convert them? Yes, absolutely.
All tax rules in a normal limited company still applies to an FIC in the normal way with one important distinction – you retain control despite giving the capital shares away.
If you have some properties that are held in your personal names and you've got some in a limited company, then it is possible to drip-feed those properties into your company, depending upon the CGT issues and we would advise you on that matter.
If you have a lot of properties ( 6 or more),you could go down the route of putting it into a partnership first and then rolling the partnership over into either a new or existing Family Investment Company that we would have converted for you.