How to plan for inheritance tax

24 September 2020

As a Tax Advisory team, we regularly encounter inspiring individuals and families who have been substantial creators of wealth. Some common features of their journey often involve hard work, determination, courage and consistency over a long period of time.

Naturally, most families have the desire to prepare for future security by investing cash in things such as properties and shares. But, when it comes to the matter of planning for the future of their wealth and how it’ll pass on to children and other family members or to charity, families can find the succession process challenging and fraught with potential dilemmas.

So what are the implications?

The threat of Inheritance Tax (IHT) often spurs wealth-holders into action. IHT’s charged at 40% of the value of a person’s chargeable estate (broadly any wealth over £325,000). There are some reliefs for business or agricultural property, but for individuals who have significant amounts of cash, liquid investments or property, the potential IHT arising on death can be sizeable. IHT’s also payable within 6 months of death, which often leaves little time to release the funds if some assets are difficult to sell.

What can we do to help you plan?

Whilst valuable IHT reliefs such as business or agricultural property relief aren’t available in respect of investment assets or cash, appropriate planning can help manage your exposure to IHT whilst creating a succession structure for the next generation.

An example of a highly effective structure’s the use of a Family Investment Company (FIC). An FIC’s a company in which the shareholders are typically different generations of a family. As with any family business, the directors can be the same as the shareholders, but in most instances, it’s the individuals who initially provide the funding that would be appointed.

One of the main advantages of an FIC is the IHT benefits. Not only is it possible for value to pass to the other shareholders on the creation of the company (subject to the seven year survivorship rule), but any increase in value of the investments can be transferred immediately.

Additional shares can be passed on later down the line, potentially via a trust. As the value of the founder’s interest in the company falls, along with their exposure to IHT, the wealth’s transferred to the other shareholders.

So, how does this work in practice?

Let’s take a look at an example.

  • The parents fund an FIC in the form of loans or gift the funds to their children for them to lend to the FIC.
  • The parents also take voting shares, which gives them control of the company at both shareholder and board level.
  • Shares can be passed to the children with rights to capital growth in the FIC.
  • The FIC can then use the funds to invest into investments of its choosing, but with the growth accumulating to the children, whilst the parents retain maximum control.

The above’s just one example on how an FIC can be structured.

Note: the company could be set up as a UK unlimited company rather than a UK limited company, in order to reduce the filing requirements and privacy of the FIC.


Ensuring your wealth stays in your family, and isn’t taxed unnecessarily can be long-winded and complex. But, with the right business advice, it can be a breeze.

If you’re interested in speaking to us about efficiently planning for yours and your family’s future, then email us or give the team a call today on 0116 490 4274.