Using a family investment company rather than a trust?

Trusts have taken a bit of a hammering in recent years. With the trust tax rate now at 40% and the change to the inheritance tax regime and anti avoidance rules, they are increasingly less attractive as a means of providing for family members. The new provisions make trusts where children benefit after they've turned 18 even less attractive. One option is to use a family investment company to pass assets onto the younger generation. The articles and memorandum of association (ie the rulebook of the company) as well as the terms of any shareholdings can be very flexible. They can limit the access children have to company income and can also restrict the transferability of any shares. Directors can also declare dividends etc as they see fit. Different classes of share capital could be used for different family members to allow the effective distribution of profits or transfer of assets. The company would be subject to corporation tax and as it would be likely to fall within the close investment company provisions the full 28% rate of corporation tax would be due. Of course a trust would be taxed at 18% on capital gains resulting in the company paying a further 10% rate of tax. There could however be inheritance tax advantages as the trust would not be subject to the IHT regime for discretionary trusts and there is no restriction on when family members can benefit from the company assets. We'll be looking at this in detail in a special tax article shortly.