Historically, family run farms have benefitted from various tax reliefs that have sheltered them from significant inheritance tax obligations. This changed in Rachel Reeves’ Autumn 2024 budget when she decided to remove APR from agricultural assets (including land) valued at over £1m. As a traditionally asset-heavy sector, the introduction of 20% IHT will present a large financial burden for many inheriting the assets, potentially forcing the breakup and sale of family farms that have been in the same hands for generations.
One solution could be a Family Investment Company (FIC), a type of private limited company that could be used to shield farming assets and land from large IHT obligations, meaning they could remain within the family for generations to come.
How do FIC’s work to save IHT liability?
Fundamentally, a FIC operates by holding farming assets within a company structure. Individuals who currently own assets in their personal name will transfer those assets to the FIC. In return, they will be given shareholdings, which will have varying rights and benefits attached to them. The advantage of moving the assets to the FIC is to transfer the IHT liability away from the assets and into shares which can be more easily gifted to family members over an extended period. Gifting shares in this way and capitalising on the annual exemption, reduces the IHT obligation linked to a single individual.
Additional benefits of setting up a FIC
Prior to incorporation, we can tailor each FIC to meet your family’s unique needs by adapting the company’s constitutional documents. Different family members can have varying levels of control and ownership. In practice, this means that senior family members can retain key decision making and oversee day-to-day operations, whilst ensuring a smooth transition of wealth and management across generations.
FICs also provide a more general level of tax efficiency to family farms. Farm profits would be subject to corporation tax (currently 25%) rather than potentially higher rates of personal income tax. This would allow the farm to accumulate and reinvest a greater proportion of its earnings, supporting growth, investment in new agricultural technology and diversification projects. There is also greater control over how proceeds from the farm are distributed within the family.
Families can also benefit from enhanced protection against any personal liabilities that individual members might face, such as those arising from unforeseen events. FICs are particularly effective in shielding assets from risks associated with divorce or insolvency. While the value of a shareholder’s interest in the FIC may be considered in legal proceedings, the underlying assets themselves are generally insulated from direct claims by creditors or former spouses. This separation provides peace of mind and continuity for the family business, even in challenging personal circumstances.
Summary
FICs are a valuable way of ensuring family wealth is cascaded down the generations in a controlled way. Individuals planning to create a FIC need to be very clear on their objectives and try and keep its structure as simple as possible. By thinking long term, focusing on wealth preservation and growth, a FIC can be a practical tool for ensuring the future financial well-being of a family farm for generations to come. Please get in touch if you would like to discuss how a FIC could help secure the future of your family farm. We would be happy to discuss the options available to you.
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