Family Investment Companies for property

Legally, it's the same kind of private limited company. The difference is the design. A Family Investment Company is set up with different share classes and articles so parents keep control and decide on dividends, while children or a family trust own shares that carry future growth. An ordinary property company is usually owned by the landlord alone or with a spouse, with one class of shares.

Typically parents hold voting shares, which carry control but little or no right to future growth, and children hold non-voting shares, which carry most of the value growth and can receive dividends. Separate classes let the directors pay dividends to some family members and not others. The rights attached to each class are set out in the articles of association, which need careful drafting for tax and family reasons.

Both are common, often together. A loan from you to the company can be repaid to you tax-free over time, and you can charge interest, which is taxable income for you. The loan stays in your estate but doesn't grow. Subscribing for shares puts value in the company in exchange for shares you own. Gifting cash to children to buy their own shares moves value out of your estate after seven years.

Usually not. A gift of cash to an adult child who then subscribes for shares is normally a potentially exempt transfer. There's no tax at the time, and it falls out of your estate if you live seven years. If shares are given to a trust instead, the gift is usually a chargeable transfer, with 20% tax on any value above your available nil-rate band. Annual exemptions can be used alongside.

They can, often through a bare trust or with shares held for them. But if you're the parent who provided the money and dividends are paid to or for a child under 18 who isn't married, the income is taxed as yours if it's over £100 a year. So companies with minor shareholders often don't pay dividends on those shares until the children turn 18, and let the value grow instead.

The company carries on. The shares you still own are in your estate at their value, and so is any loan you made to the company, but the growth shares your children already hold are not. Voting shares with little economic value may be worth relatively little. Your will should deal with who inherits your shares and who takes over as director, and the articles should say how shares can pass.

You can, but it's usually expensive. A transfer to a company you're connected with is treated as a sale at market value for capital gains tax, and SDLT is normally charged on market value too, including the 5% higher-rates surcharge. Incorporation relief may defer the gain if your letting is a genuine business, but it needs the whole business transferred for shares. That's why many families use a FIC for new purchases instead.

Usually the parents, at least at first, because the directors make the day-to-day decisions on buying, selling, borrowing and dividends. Adult children can be added as they become ready to take part. Directors have legal duties to the company and all its shareholders, so they can't simply act in their own interests. The articles and a shareholders' agreement can set out how decisions are made and who can appoint directors.

Yes, if each child holds a separate class of shares. The directors can then declare a dividend on one class and not another, so each child's dividends can reflect their own tax position and needs. The share rights must be genuine and set out in the articles. Paying dividends to a minor child, or to a spouse, needs particular care because of the rules that can tax that income on the parent instead.

Yes, that's one of the main reasons for using one. Parents are usually the directors and hold the voting shares, so they decide on purchases, sales, borrowing and dividends. The articles and a shareholders' agreement can add protection, for example rules on what happens if a child's marriage breaks down, or restrictions on selling shares outside the family.

No. A company that mainly holds let property or other investments is excluded from Business Relief, so any shares you still own are in your estate at their value. The inheritance tax benefit comes from moving shares, and therefore growth, to the next generation while you're alive, not from relief on the shares you keep. A minority holding may be valued at a discount, which can help.

Not simply because you're a director with voting shares. Control alone doesn't usually mean you've reserved a benefit from shares you've given away. Problems arise if you keep a benefit from the gifted shares themselves, for example dividends flowing back to you, or if the arrangements are designed so the value never really leaves you. The share rights and articles need to be drafted with this in mind.

Often, yes. An existing company can reorganise its share capital, adopt new articles and create new share classes, and parents can then give or sell growth shares to their children. The company keeps its properties, so there's no SDLT or capital gains tax on the properties themselves. But gifts of shares are disposals at market value for capital gains tax, and gifts for inheritance tax, so the timing and valuation need planning.

There are annual accounts, a corporation tax return and a confirmation statement, plus ATED returns if the company owns dwellings worth over £500,000. Dividends need proper paperwork and board decisions. Shareholders may need their own tax returns. The running costs are higher than owning property personally, so the structure needs to be big enough for the tax savings to clearly outweigh them. We set up the structure on a fixed fee.

Yes. Many lenders offer buy-to-let mortgages to limited companies, often asking for personal guarantees from the directors. The interest is deductible against rental profits without the Section 24 restriction. Loans from parents can sit alongside bank borrowing. Lenders sometimes have rules about company structure and share classes, so check with your broker before the company is set up.

Yes. Grandparents can lend money to a company or gift cash to adult children or to a trust for grandchildren, using the same rules. The parental settlement rule that taxes a minor child's income on the parent doesn't apply to gifts from grandparents, so dividends to grandchildren under 18 can be taxed as theirs. Each gift still needs to be considered for inheritance tax and the seven-year rule.