The parents will gift on formation of the company by passing shares or cash for the subscription of shares to children or grandchildren.
• These initial gifts are potentially exempt transfers (PETs) and if the donor then survives seven years from the date of the gift, the value of the gift will fall out of their estate for IHT purposes
• share valuation – when valuing a family member’s shares for IHT purposes, a discount may be applied to reflect the size of the interest. Discounts for investment companies are not the same as for trading companies but can still be advantageous. The cumulative effect of the discounts when looking at a family as a whole, can add up to a material amount, especially if all the family members have only a minority interest
• an FIC is not within the relevant property regime—so it is not subject to ten-year anniversary charges of up to 6% nor exit charges
• In order to secure these IHT benefits, an FIC will typically be structured so that the shares are spread between many family members and also family trusts.