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  • Family Investment Company vs. Trust Structure 

    16 December 2019

    Andy Wood

    Family Investment Company vs. Trust – Tax Compassion

    Setting up a Family Investment Company or a Trust – Comparison & Background

    This article sets out a side by side comparison of the Family Investment Company v Trust.

    Family Investment Company (“FIC”) Traditional Trust structure
    Who’s calls the shots? The FIC is managed and controlled by its directors, who are usually the family (unless a non-UK resident FIC). The trust is controlled by the trustees who may, or may not, be the family. Again, where there is a non-UK trust the trustees are unlikely to be family members.
    Who may benefit from the assets? The net value of any assets held by the FIC is owned by the shareholders. The trustees hold the assets comprised in the trust fund for the beneficiaries.
    What payments may be made? The interests of the shareholders will be set out in the company articles. This will ‘lock in’ the various entitlements to income and capital and, also, any voting rights attached.

    Generally, speaking, it is difficult to replicate the same discretion that trustees will often have in relation to a family trust.

    As such, the type of payments that can be made may be fixed at the outset and any changes might require a change to the articles of the FIC.

    Generally speaking, in the context of a family trust, the trustees will have discretionary power. As such, the trustees will have discretion over whether payments are to be made, how much and to whom.
    Internal regulation As alluded to above, a FIC will be governed by its articles and any agreements made by the shareholders.

     

    The articles of a company, depending on the jurisdiction, may be a public document. As such, to provide an element of privacy, certain matters might fall to be dealt with in a shareholder’s agreement.

    The ‘nuts and bolts’ of a trust are set out in its deed (and generally also with a letter of wishes).

     

    Neither of these documents will be public ones.

    External regulation The FIC will be covered by Company Law in the relevant jurisdiction. The trust will be covered by trust law which is highly developed.
    Registration requirements? A UK FIC will need to be registered at Companies House which is freely searchable by any person with an internet connection.

     

    If one wants to protect one’s information from prying eyes then one might look at other jurisdictions, where such registers are not freely searchable

    At present, trusts must register with HMRC where there is a UK filing position.

     

    Please see our full Signpost document regarding Family Investment Companies for more information on these vehicles.

    If you have any queries regarding Family Investment Company v Trust, or FICs in general, then please get in touch.

     

     

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    Family Investment Company v Trust was last updated on 16 December 2019