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Structuring family wealth

Structuring family wealth

We are increasingly providing advice to our clients on the set up of investment companies for the purpose of structuring the long-term ownership of family wealth. Often this arises around the time when an entrepreneur decides to realise the value of the business they have built up over many years and sell their company. They then want to know what to do with the proceeds to fund their retirement and provide for their family’s future in a tax efficient way.

The first step is to fully understand the objectives of the entrepreneur reflecting the dynamics of the family. Frequently one answer to achieve these goals is an investment company, a bespoke vehicle for holding family investments. The company may be a ‘stand-alone’ owned by the entrepreneur and his family, or it could be the holding company of a trading group allowing surplus profits to be tax efficiently distributed to it.

Once the optimum structure is decided, we then work with experienced lawyers to ensure the company is set up, controlled and funded so that family wealth accumulates tax efficiently on an ongoing basis and is protected as far as possible from future inheritance tax liabilities. Although the disposal of an asset or business often results in the establishment of an investment company, these entities can be set up in many other circumstances.

Example

Three years ago, one of our clients successfully disposed of their trading business but was then worried about how to use the proceeds for the long-term benefit of their family in a tax efficient way. Once we helped them to agree their objectives, we advised them to set up and loan £20m to their new investment company which in turn invested in a portfolio of equities.

Over the last three years alone, our client has saved around £200,000 of tax compared to holding the portfolio personally; the structure we helped set up has taken around £3m of asset growth out of their estate for inheritance tax purposes and there is also a plan to mitigate the potential inheritance tax on the original £20m investment.

Key reasons for using an investment company are as follows:

  • Provides a flexible privately-owned vehicle for the long-term ownership of investments on behalf of the family, allowing it to be passed on to succeeding generations. Over time, the next generation can be involved in management of the investment portfolio and setting the strategy for the company.
  • Ownership by family members in the desired proportions, whilst control is retained by the elder generation through holding all or most of the voting shares. Ownership can also be held by a trust, with the beneficiaries being current and future members of succeeding generations.
  • Wealth can accumulate tax efficiently at lower corporation tax rates with any dividends received usually tax exempt. This compares to holding investments personally where income would be subject to higher income tax rates.
  • Growth in the investment portfolio realised outside estates for inheritance tax for the older generation so minimising future tax liabilities.
  • Funding of the company, with a loan from the entrepreneur, allowing company profits to be distributed free of tax by way of loan repayments, as well as flexibility on gifting the loan receivable without significant inheritance tax implications.
  • Non-aggressive tax planning structure to protect family wealth, with HMRC recently confirming they are not focusing specifically on ‘family investment companies’.

 

The structuring of wealth for the long-term benefit of the family is a significant decision and requires consideration of many factors. We have the experience to ask the relevant challenging questions and provide you with advice to enable you to decide how to hold your wealth, project managing the implementation and providing ongoing support for the company and its shareholders.

Please contact your usual Creaseys contact or our specialist team on 01892 546546 to arrange a meeting to explore the opportunities.