We have witnessed a growing interest in family investment companies in recent years. However, many people have not heard of or know much about them.
This article explores the use of FICs in relation to estate planning, and sheds some light on how some simple principles can make the use of a corporate vehicle for estate planning very attractive.
As the UK population continues to age, estate planning is becoming more important for an increasing number of people.
The Office for National Statistics states that between 2016 and 2066, there are likely to be an additional 8.6mn people in the UK aged 65 years and over, a population roughly the current size of London.
In addition, the inheritance tax threshold of £325,000 has been frozen since 2009. This will continue until at least 2028, and so the effect of fiscal drag is that the government will continue to take an increasing amount of money in IHT receipts.
In the 2022-23 tax year, the last year for which statistics are available, the government collected £7.1bn in IHT. These two factors have brought an increasing number of people into the IHT net.
Estate planning concerns
Much of the conversation around IHT planning will involve giving assets away. For many, that is perfectly acceptable. You would need to be comfortable that you yourself do not need the assets given, and that the people receiving them will use them wisely.
For many clients, however, the idea of giving assets away can cause them concern, and the conversation often turns to how can they control their use even after they have been transferred?
What are the options?
Much will depend on the amount you are looking to give. For amounts up to your IHT threshold — for a married couple that is £650,000 combined — you could consider creating a lifetime trust into which you can transfer assets.
You would need to obtain careful advice on the implications of setting up a trust and understand that it requires administering, with a requirement to be registered with HM Revenue & Customs. Trustees often complete tax returns and hold regular trust reviews — ideally, annually or sooner if circumstances change.
Trusts are a useful tool. For the right client they are an extremely effective way of giving assets away.
The difficulty with trusts, however, is that you are limited to the amount you can put into the arrangement in any seven-year period. If you were to put more than £325,000 a person into a trust there is an immediate lifetime IHT charge of 20 per cent. Say you wanted to gift £425,000 into a trust, that would mean you would be hit with an immediate charge of £20,000, being 20 per cent of the £100,000 above threshold. That is unpalatable for most, and therefore we have witnessed an increasing number of clients who want to explore other options.
