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Taxation of the Family Investment Company

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Taxation of a UK Family Investment Company

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

Tax & Family Investment Companies – Background

Did you Know? There are no special tax exemptions or reliefs for Family Investment Companies. They are taxed in the same manner as any other company…

Corporation Tax & Family Investment Companies

Generally speaking, the company will pay corporation tax on its profits and chargeable gains for the period.

This is currently at 19%.

Note, it appears that the slated fall to 17% that was due to take place from 1 April 2020 appears to be cancelled.

Capital Gains Tax & Family Investment Companies

As stated above, any capital gains that are realised by the company are subject to corporation tax at the rate above. This is lower than the current main rate of capital gains tax (CGT) of 20% that would be payable by an individual.

The method of computing gains is broadly similar to that for individuals. However, where assets were held prior to 1 January 2018, an indexation allowance is available.

Other reliefs, such as Substantial Shareholding Exemption (“SSE”) may also be available to the Company depending on the circumstances.

FIC — Dividends — General Info

In the most part, any dividends received by a UK FIC, including any foreign dividends, will be exempt from corporation tax.

There are slightly different rules depending on whether the company is small and other wise in deciding whether the tax exemption applies.

Small Companies 

The general rule is that dividends received by a small company are exempt from corporation tax where:

  • The payor company is resident for tax purposes in a country which has a double tax treaty with the UK and the treaty in question contains a non-discrimination clause;
  • No tax deduction is given for the dividend outside the UK; and
  • The distribution is not made as part of a tax advantage scheme.

A company will meet the definition of small company where:

  • It has fewer than 50 employees; and
  • Either:
    • a turnover; or
    • gross assets of not more than €10 million.

Non-small companies

Dividends received by other companies will be exempt where:

  • No tax deduction is given for them outside the UK; and
  • They fall into one or more of the exempt classes.

It is worth pointing out that most dividends will fall into one or more of the exempt classes.

Overseas Dividends & Interest – Withholding Tax

Where the FIC receives dividends and / or interest from overseas payors then these payments may be subject to withholding taxes.

The rate of any withholding tax may be reduced by any relevant double tax treaty.

Any withholding tax paid can usually be offset against the UK corporation tax payable on the income.

However, if income is exempt from UK corporation tax then any withholding tax paid on that income will not be refunded.

Tax Relief on Interest to Purchase Assets

The FIC should be able to claim a corporation tax deduction for interest payable on loans secured on the value of its investments where the funds borrowed are used for the purposes of the FIC’s business.

Management Expenses & Family Investment Companies

Any management expenses that are incurred by the FIC in the management of its investments / running the business should be deductible for tax purposes. Such expenses will include remuneration paid to the directors and employees.

If you have any queries regarding the taxation of the family investment company, or FICs in general, then please get in touch.

Taxation of the Family Investment Company was last updated 16 December 2019

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