How do you place investments into a Family Investment Company?

When you transfer investments into a company, you could actually take the investments themselves – for example, if you have a brokerage account with somebody, you can transfer the name of the brokerage account to the company.

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What’s the process of placing assets into a Family Investment Company?

When you transfer investments into a company, you could actually take the investments themselves – for example, if you have a brokerage account with somebody, you can transfer the name of the brokerage account to the company. Effectively, this means the ownership of that account will transfer to the company along with the investments so you don’t need to sell them down. You will need to check with your brokers first whether this is possible but in most cases it is.

The movement of the asset value will generate immediate capital gains tax liability. A company is a separate legal entity, it’s taxed differently and it can continue to exist without the original settlors. In some cases, though, it is better to pay 10-20% capital gains tax rather than wait and pay 40% inheritance tax. If you live another 20 years, the value of the investment may double and instead of paying 10% on the value today, you pay 40% on double the value when you eventually die.

The transfer of existing investments is only possible with the permission of the company with whom you have registered the investments.

Another way is to liquidate the investments and place the cash into the Family Investment Company. This will also generate capital gains tax which will be payable immediately. When the money goes into the Family Investment company you can exchange that money either for director’s loans or redeemable preference shares. Once the money is in the company, then any growth on the investment will be subject to corporation tax and you could extract the money from the company via the director’s loans, which will be free of tax because it’s a repayment of capital. If you extract the money as dividends then dividend tax will be payable as well.

Another possibility is to exchange the value of the investment for redeemable preference shares. This is a share class which has a fixed value. If you put £1 million into your company you could have £1 million worth of redeemable preference shares but the value stays fixed forever – there is no increase in the value. Any increase in the value of the company goes to a separate share class – the growth shares. Those redeemable preference shares could be placed into either a discretionary trust (which takes 7 years to come out of your estate) or into an Employee Benefit Trust. If the shares are put into an Employee Benefit Trust, you will do that alongside any capital shares which may carry large capital gains tax issues. But this will have the advantage of the money being outside of your estate immediately.

The other benefit of the redeemable preference shares is if they go to a trust, you can defer the decision as to who is going to get the money for years and years. If you give away a director’s loan you will need to make that decision before you reach the age of 75 because there is a 7-year timeframe before it’s outside of your estate.

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