Family Investment Company vs Family Limited Partnership: which suits your family?
Both structures let parents pass the value of a portfolio to the next generation while keeping control of how it is invested. The key difference is tax: a company is taxed in its own right, while a partnership is transparent and its profits are taxed on the partners.
What is a Family Limited Partnership?
An FLP is usually a limited partnership registered under the Limited Partnerships Act 1907. The parents, often through a company they control, act as the general partner and manage the investments. Children or a trust hold limited partnership interests, which entitle them to a share of the value but no say in management.
How is a FIC taxed compared with an FLP?
- FIC: profits pay corporation tax at up to 25%, and most UK dividends received are exempt. Shareholders pay dividend tax only when profits are paid out.
- FLP: no tax at partnership level. Each partner pays income tax and capital gains tax on their share of profits each year, whether or not it is distributed.
- Gains: a FIC pays corporation tax on gains with no annual exempt amount; FLP partners pay capital gains tax at 18% or 24% and can use their own exemptions.
- Gifts of shares in a FIC or interests in an FLP to individuals are potentially exempt transfers for inheritance tax, falling out of the estate after seven years.
Which gives more control and privacy?
Both structures keep control with the founders. A FIC files accounts at Companies House, although small companies can file limited information. Limited partnerships have more limited public filing, which some families value, but reforms to limited partnership law have increased registration requirements.
Which families choose which structure?
- A FIC often suits families who will reinvest most income for many years and benefit from 25% corporation tax rather than higher income tax rates.
- An FLP often suits families where partners are basic-rate taxpayers, or who want income and gains taxed directly at personal rates.
- FLPs are often combined with trusts; FICs with share classes can achieve similar results without trust charges.
Frequently asked questions
Both can move future growth outside the founders' estate through gifts of shares or partnership interests. The better choice usually depends on income tax, not inheritance tax.
No. An FLP is tax-transparent, so each partner pays tax on their share of the profits.
Yes. In a FIC they keep control as directors and voting shareholders; in an FLP through the general partner.
Limited partnerships generally do not file public accounts like companies, which gives more privacy, although registration requirements have increased.
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