Benefiting the Next Generation
As the rules around trusts have been tightened, accountants and estate planning lawyers have been looking for alternatives. Both have come up with the same solution, with accountants generally calling them Personal Investment Companies (PICs) and lawyers calling them Family Investment Companies (FICs). They used to be the preserve of the super-wealthy, but professional fees have reduced over time, and they are now in wider use.
Firstly, a PIC is not a trading company and therefore does not rely on Business Relief as an exemption. Rather it is a way of holding taxable assets in a flexible family structure so that over time the next generation can start to benefit from the money.
If adult children are appointed directors alongside their parents, they can benefit from tax exempt company contributions to their own pensions. These contributions must be justified under the ‘wholly and exclusively’ rules and so the individuals should have a genuine role in the company.
If they are shareholders they can benefit from dividends, salary etc. Their shareholding does not have to have voting rights and therefore control can be retained by the parents.
The biggest issue with a PIC is how it is funded. You can’t just gift money to a company, in the same way that you can to a trust. The most common approach is to lend money to the company (a little like the loan trusts in a prior section) and investing the money to generate income and growth which can be distributed. Due to the funding being a loan and not a gift it is a slower acting solution but has its place alongside direct gifts to family and to trust.
PICs are available to Altor clients in our Core Service but may require further fees from an accountant.
Nothing on this website or its links constitutes a personal recommendation; the information contained is designed to be informative but not to be relied upon as individual circumstances could affect the relevance of this guidance.