Family

investment
company
planning.
What does it do?
This planning is suitable for protecting “family wealth” – investment
assets held as shares, securities, property, cash etc. It enables family
wealth to be used to provide long-term benefits to children and
grandchildren as a reward for working in the family investment business,
rather than just “handing over” the assets to them.
It allows accumulated family wealth to be retained
by the family for the long-term, and also allows it to
be used flexibly to benefit children and grandchildren
in the future.
How does it work?
– The individual establishes a new family investment
company, and transfers the assets to the company
in return for the issue of shares.
– The company commences an investment business.
– Those members of the family it is intended, should
benefit are employed by the company.
– Subsequently the company establishes an
Employee Succession Trust, with a view to the long
term incentivisation of the employees involved in
the running of the business.
– The individual appoints the trustees, and gifts the
majority of the shares in the company to them to
hold on behalf of the beneficiaries.
– In due course, grandchildren may also become
employees of the business.
It may be particularly suitable where there is
a desire to prevent the next generation from dissipating
family wealth, or to protect it from children’s or
grandchildren’s spouses in the event of divorce or
separation. It enables control to be retained over the
family wealth by the individual until succession, and
there after to control how family wealth is applied
to future generations.
In addition, the family wealth is also largely protected
from dissipation via future inheritance tax charges.
FAQS
Who is this planning suitable for?
The planning is suitable for any individual or couple
with suitable assets.
What assets are most suitable for this planning?
This planning is most appropriate for liquid assets
including cash deposits, as well as other investments
such as share portfolios and investment property.
What is the minimum value of assets that this
planning is suitable for?
It will depend on the particular circumstances,
typically this arrangement will not be suitable for
investment portfolios valued at under £250,000.
Can the family home be transferred to the family
investment company?
Not while a family member remains living there.
However, if the individual is married or in a civil
partnership and is concerned with protecting the
family home, then an alternative form of planning
may be suitable: please contact Michael Harwood+
for further details.
Are Michael Harwood+ involved in the investment
activities of the company?
No. Michael Harwood+ will not advise the company
in any way regarding suitable investments or a
suitable investment strategy as Michael Harwood+ are
not authorised to do so. Instead, the company should
appoint a qualified investment advisor.
Key features
– Pass family wealth to the next generation
in the form of an investment business
– Reduce the risk of future dissipation of
family wealth
– Long-term family asset protection
– Discretion to benefit children & grandchildren
– Ongoing control of assets and access
to income
– Immediately reduce inheritance tax exposure
Can the planning be undertaken where there is
a power of attorney in place?
Potentially, so long as the individual still remains
capable of approving the creation of the family
investment company and the subsequent transfer
of shares to the trust.
How will the next generation be involved in the
company?
Typically, one or more of the next generation would
be employed by the company with a view to assisting
the directors in managing and increasing the value of
the company’s assets. For example, they may attend
monthly meetings to discuss investment strategy.
What is an employee succession trust?
An Employee Succession Trust is a trust established
for the purpose of holding shares in a company to
incentivise its employees over the long term.
Who controls the company after the shares are
transferred?
The trustees will hold a majority of the shares. However,
the trustees would leave the day-to-day running of the
company to its directors. Furthermore, the individual
would generally be appointed as the protector of the
trust, which gives them the power to guide the trustees,
or even replace the trustees if ever required.
Is there a minimum % of shares that must be gifted
to the EST?
Yes. The trustees must hold over 50% of the issued
ordinary share capital of the company.
Who are the beneficiaries?
The beneficiaries are the current and future directors
and employees of the company and their families.
Can the individual be a trustee?
Generally this is not advisable: however, they would be
appointed as the Protector of the Trust. The individual
would appoint the initial trustees, which could be their
accountant, their solicitor or a professional trustee
company.
What are the capital gains tax implications
of transferring assets to the company?
It will depend on the type of assets involved. If
the asset is cash then there shouldn’t be any CGT
implications. The transfer to the company of shares
or property may trigger a CGT charge. If this charge
is significant then the planning may not be
appropriate.
Are there any other tax charges?
The transfer to the company of shares or property
may trigger stamp duty or stamp duty land tax (SDLT)
charges depending on the value of the asset.
Is there an inheritance tax charge if the individual
dies within 7 years?
No. Once the shares have been transferred to the
trust they are immediately outside of the individual’s
estate for IHT purposes: therefore, their death within
7 years would not affect the IHT position.
Is the arrangement suitable for “death bed planning”?
In principle, yes, in that this arrangement enables
individuals or couples to relatively quickly establish
a structure to protect their investment assets for their
family and to prevent the family wealth from being
squandered.
Is the transfer of shares to the trust a chargeable
lifetime transfer for IHT purposes?
No. The legislation specifically makes provision for the
transfer of shares to an EST to be an exempt transfer.
Are the shares in the trust subject to 10-year charges?
No. ESTs are generally not subject to 10-year charges.
Is this arrangement subject to DOTAS or the GAAR?
The structure solely uses statutory reliefs and Tax
Counsel has confirmed that it is not subject to the
Disclosure Of Tax Avoidance Schemes (DOTAS) regime
or the General Anti Abuse Rule (GAAR). Furthermore,
all the various transactions would be disclosed to
HMRC in full at the relevant time.
Disclaimer. Please note that nothing contained in this fact sheet
should be construed as investment or taxation advice. The purpose
of this fact sheet is simply to outline the broad terms of the
arrangement. You should always consult Michael Harwood+ and your
professional advisers to ensure that the planning is suitable for you.

To find out more contact us on 01926 419444

or email enquiries@michaelharwood.co.uk

Michael Harwood & Co.

Chartered Accountants

Greville House
10 Jury Street
Warwick
Warwickshire
CV34 4EW
T. 01926 419444
F. 01926 419844

45 Warwick Road
Kenilworth
Warwickshire
CV8 1HN
T. 01926 290195
F. 01926 419844

E. enquiries@michaelharwood.co.uk
www.michaelharwood.co.uk