Retirement: Fully Exit Your Business or Convert to a FIC?

Most business owners get to a stage where the day to day running of the show loses its lustre. If there is some value in the business and passing the role to the next generation isn’t an option, then you need another exit route. Converting your business into a family investment company (FIC), either after trade cessation or after a trade sale, might appeal to you.

A FIC typically has the following characteristics:

• Fundamentally, it is just a normal Companies House registered private limited company.
• The activity now is that of holding of investments (property, shares, cash, private loans, etc). A FIC can be created from scratch or be converted from a normal trading company.
• The next generation are involved as shareholders. Shares are typically split between more than one class, with varying rights as to control, dividends and capital value. Share types known as golden shares, shrinking shares and growth shares are particularly popular.

Every FIC is different in terms of your starting position, your family dynamics and the structure that best suits you moving forwards. You will also find that each professional who advises on FIC’s has a different personally preferred solution.

Setting up the shareholding aspects as a NewCo or whilst the trade still exists, usually means that no tax is triggered (as capital gains tax holdover relief can be claimed). But this is not the case if the company already has some investment activity, so plan early.

What sort of business owners I have found like this solution:

• Those who have now missed out on the 10% business sale/liquidation CGT rate, so instead decide to draw out the value of their business over the years of their retirement, when they pay a lower income tax rate.
• Those who wish to sell the trade but do not need the cash personally yet, so take advantage of a group structure to sell tax free.
• Those who wish to now start reducing their inheritance tax exposure (or stop it increasing).
• Those who don’t feel able, or wish to, fully hand over control and/or cash to the kids yet.
• Those who do not the feel the kids will have the skillset and/or ambition to run the full trading company, but believe they could run a simpler investment company.
• Those who still wish to keep their hand in (a little) after they’ve retired.

Get In Touch

If any of the above sound like you, please do get in touch with your local Whitings office soon. Especially if you fear that the upcoming Budget (28-Oct) will increase capital taxes.