Family Investment Companies – A Corporate Solution to Estate Planning Challenges?

The 2024 UK Budget has very much thrown a cat amongst the pigeons with respect to estate planning for people owning trading businesses and farms.   No longer is it generally acceptable to advise such clients that they can “die with their boots on”.  For transfers taking place on or after 6 April 2026, 100% relief from inheritance tax (“IHT”) for qualifying agricultural and business assets will continue for the first £1,000,000 of combined agricultural and business property, but the deduction will be 50% thereafter. This will effectively result in an IHT bill of 20% on the value of family businesses or farms exceeding £1m in many circumstances.

Consequently, many families whose estate planning has previously involved passing on business assets and/or agricultural estates on the death of the second parent to die, will need to actively reconsider their estate planning and alongside this, consider family succession issues.    

Many heirs to trading businesses and farms, which are generally capital-rich but cash-poor, will find it very difficult to find funds to discharge the inheritance liability without causing major trauma to the business.  What to do?

Family trusts have always been a traditional feature of estate planning, as a well-known means of passing on wealth to the next generation, and potentially reduce Inheritance Tax on an estate, without necessarily passing control of the wealth to the next generation. 

However, Family Investment Companies have become increasingly more attractive over the last 10 years because of their simpler legal structure (which is generally more familiar to company owners) and possible tax advantages.  In the meantime, we have seen the popularity of Trusts decline, perhaps due to their archaic, unfamiliar and legalistic nature, and a less sympathetic tax regime. 

Another benefit of a Family Investment Company is the degree of control the shareholders have over the assets. A common issue in estate planning is the restrictions imposed on the dealing of assets placed “in Trust”, whereas a Family Investment Company is much more flexible and allows for the disposal of assets whenever the Company deems appropriate. This enables the Family Investment Company to readily adapt to market trends, which would be particularly useful to business owners and farmers.

To find out if a Family Investment Company is the right solution for you, or to explore other available options, the experienced Estate Planning team at Caldwell & Robinson would be more than happy to assist you with finding a solution tailored to your circumstances.