How does a FIC work?

Typical trading structure

Person A's Family - who are not shareholders in the company:

Partner: B = (51 y/o) Children: C = (20 y/o), D = (18 y/o)

Trade Co Limited

Income – Person A = the owner:

£10k employment income

£50k property income

£750k dividends

c.£310k expected tax liability

Net income £100k for living costs, £400k for investment.

Total £500k

Income would mean maximum pension contribution tapered to £10k per annum (to avoid tax charges).

100%

FIC shareholding example

B, C, D - subscribe for shares in the FIC - can be growth shares so that the growth in value is outside of Person A's estate.

Person A can decide to pay a dividend to these shares, they have full control of the FIC.

Once the FIC starts generating dividends and reserves, they can be voted by Person A to Person C and D. In 2024/25 each of them could be voted £13,570 tax free.

Tax free dividend from Trade Co to FIC

Family Investment

Co Limited

Trade Co Ltd

What's the tax saving?

BEFORE			Scroll down to see full table

Parent with full receipt of funds
	Income	Dividends
Employment Income	£10,000.00
Property Income	£50,000.00
Dividend Income		£750,000.00

Total	£60,000.00	£750,000.00

Income Tax
£37,700 @ 20%	£7,540.00
£22,300 @ 40%	£8,920.00
			£16,460.00

Tax on Dividends
£1,000 @ 0%		£0.00
£51,570 @ 33.75%		£17,404.88
£697,430 @ 39.35%		£274,438.71
			£291,843.58

Total Tax:			£308,303.58

If person A wanted to pay for their sons university costs, a total £30,000 fee, they would need to take an additional £49,465 of income, suffering 39.35% tax.

Assumptions:

Family members have no additional income
No pension/charity contributions

Assumes each family member takes 50k each.

The total dividend forgone by Person A is £150,000. The family members have taken this dividend instead. The tax saving is £49,401.38.

It is possible for Person A to take a lower dividend and allow the profit to accumulate within the FIC, to take at a later stage. This will increase the tax saving further

Person A’s child can use their dividend payment to pay their university costs of £30,000 with a net tax cost of £3,187.63 .

AFTER			Scroll down to see full table

Parent with FIC, £50k to 3x family members
	Income	Dividends
Employment Income	£10,000.00
Property Income	£50,000.00
Dividend Income		£600,000.00

Total	£60,000.00	£600,000.00

Income Tax
£37,700 @ 20%	£7,540.00
£22,300 @ 40%	£8,920.00
			£16,460.00

Tax on Dividends

£1,000 @ 0%		£0.00
£51,570 @ 33.75%		£17,465.63
£547,430 @ 39.35%		£215,413.71
			£232,879.33

Total Tax			£249,339.33

Dividend for each family member of £50k

Employment Income	£0.00
Property Income	£0.00
Dividend Income		£50,000.00

Total	£0.00	£50,000.00

Personal allowance		-£12,570.00

Taxable Dividend		£37,430.00

Dividend Tax
£1,000 at 0%		£0.00
36,430 @ 8.75%		£3,187.63

Total			£3,187.63

Tax saved			£49,401.38

Net transferred to each child			£46,812.38