Family Investment Companies (FIC) are a bespoke vehicle which can be used as an alternative to a more traditional family trust. It is usually a Limited company whose shareholders are usually family members or close relatives.
From 1st April 2023, Close Investment Companies (such as FICs) will be subject to the ‘main rate’ of 25% corporation tax on all the Close Investment Company profits in excess of £250,000 per year. Prior to 1st April 2023, the main rate of corporation tax for Close Investment Companies was just 19% for all profits.
To explore these tax changes in more detail, the ‘small rate’ of corporation tax of 19% will apply to all Close Investment Companies up to the first £50,000 of taxable profits per year. The highest ‘marginal rate’ of corporation tax of 26.5% will then apply for profits from £50,000 up to £250,000 per year. Lastly, the ‘main rate’ of 25% of corporation tax will then apply for all profits in excess of £250,000 per year thereafter.
The above rate bands for corporation tax purposes are all divisible by the number of associated companies that under the common control of the Close Investment Company. Therefore, for anti-avoidance purposes, a Close Investment Company cannot benefit by owning several companies to utilise each company’s £50,000 ‘small rate’ of corporation tax across the board, thereby artificially lowering the corporation tax liability under these new rules.
It is very apparent that the UK Government are trying to find any way they can to increase the tax burden on individual’s who have utilised a FIC structure to reap some the tax benefits that came with doing so. Before these new rules tax affect from 1st April 2023, it may be worthwhile undertaking a review of your current trading structure to see if it going to be as tax efficient post-April 2023 as it was previously.
To find out more, contact Henry Smith-Langridge for a free consultation.
