Separating your assets:
What should be avoided is mixing an investment family investment company with a property rental Family Investment Company.
If necessary, have two family investment companies or a property company which is wholly owned by a FIC. The reason is that when you have investments, you are not facing any liability or potential lawsuits. If something goes wrong with your investments you lose money, but with a rental portfolio, a tenant could sue you for all assets held in the company.
Benefits of holding cash in a Family Investment Company:
It is advised that cash should be placed into the company on setup.
One of the major benefits of that is you can swap the cash for Directors Loans. For example; you are putting in a £1 million in cash assets and you need £50,000 a year for the next 10 years. You can get £50,000 a year out of the company as a return of capital completely free of any income tax or capital gains tax.
Directors Loans are still in your estate for inheritance tax, so ideally, you do not want to keep Directors Loans past the age of 75. However, you can transfer even give up the Directors Loans to your children, provided they are employees of the company.
When is it suitable to hold investments in a Family Investment Company?
Usually, we would look for people to put £650,000 (If they are a married couple) or £325,000 (if they are a single, divorced or widowed person) into a trust, because you can be pretty certain there will be no come back on the investment for inheritance tax purposes. With a Family Investment Companies, this certainty is not guaranteed.
However, if your portfolio exceeds £1million and you are not expected to live 14 years, you cannot put the money into trust now and put another lot in in seven years’ time if it will potentially fail the 7 year rule test. What are you going to do? You could buy business relief plans. Unfortunately, business relief plans attract quite a high level of risk because they are invested in a single company.
In such circumstances, a Family Investment Company for an investment portfolio is certainly worth considering.