Family Investment Companies: is it right for you?

A Family Investment Company (FIC) is a useful tax planning tool that will appeal to you if you are looking for a vehicle where wealth can grow in a more tax advantageous environment. Likewise, they are great if you want to exercise a degree of control over assets and you are familiar with a corporate structure.

If you are looking to build/maintain generational wealth while performing effective estate planning, then a FIC might be for you.

What is a Family Investment Company?

A FIC is often assumed to be a unique corporate structure – it isn’t. It is just an ordinary company, but rather than conducting a trade, it will typically be investing in the stock market or sometimes property. The FIC will still have shareholders, directors, and is subject to company law. What may look a little different to someone familiar with a trading company is the structuring of the shares and the rights attached to them.

Who should consider a FIC?

Typically, you may want to consider a FIC if some or all of the following apply:

• You have liquid assets worth a minimum of £500,000 that you want to invest.

• You have already made gifts into trusts worth more than £325,000. If you haven’t made such gifts, a FIC could still be right for you.

• You want to retain a high level of control over shares in the FIC that you will pass onto the next generation.

• You are familiar with a corporate structure and prefer it to a trust.

• You want your wealth to accumulate within a corporate structure. 

Why use a FIC?

A FIC can offer both tax and non-tax advantages:

Income tax

• If individuals were to invest personally in the stock market, they would be taxable on the income. For dividends, they would be taxed at a rate between 10.75% and 39.35% (2026/27 onwards).

• FICs pay Corporation Tax between 19% and 25% depending on their level of profits.

• However, a key advantage is that if the FIC exclusively receives dividends, it will usually pay no Corporation Tax on this income.

• Shareholders will still suffer tax on dividends received from the FIC.

• So, if the shareholders pay tax at the same rate when extracting dividends from the FIC as if they just received the dividends direct, what is the benefit?

• If the FIC reinvests the dividends it is receiving, growth can be achieved in a mainly tax-free environment. Think of it like a pension, but with more flexibility and control. This is why FICs can be a great tool for building generational wealth.

Inheritance tax (IHT) mitigation

• If you have already made gifts into a trust and/or want to ensure that the future growth on assets you currently own is outside your estate, a FIC could work for you.

• While a FIC can be used as an alternative to a trust, they can also complement one another too, offering the opportunity to potentially mitigate Inheritance Tax and enhance asset protection.

Control retention

• There are a few different ways to structure the share ownership of a FIC.

• Broadly, there can be different classes of shares and different rights attached to these.

• Some of the shares are usually put in the names of children or grandchildren, or held in trust for their benefit.

Asset protection

•  As above, your children or grandchildren will typically own shares in the company. Understandably, you may have concerns about what happens to the shares gifted to children or grandchildren if they were to get divorced, or if they were to get into financial difficulty. 

 Careful drafting of the Articles and Memorandum of Association of the FIC can reduce the financial impact of such an event. As mentioned above, trusts can be used to complement a FIC by adding an extra layer of asset protection.  

Compliance and the common pitfalls of a FIC

A FIC must be registered with Companies House. This means certain information about the company and its shareholders will be public knowledge.

Additionally, FICs must comply with ongoing reporting requirements, such as annual accounts, annual confirmation statements, etc. This workload comes with an additional cost, if the FIC outsources this to an accountant.

For these reasons, we only typically recommend individuals consider a FIC if they are looking to invest more than £500,000.

It is also important to take specialist advice regarding the different share classes due to the risks involved.

Directors will also need to be aware of their duties and responsibilities which are the same as a normal company.

General pros and cons for FICs

How are Family Investment Companies funded?

FICs are typically funded in two ways: through a loan from the parents, or through a gift of capital.

A loan is advantageous because it can be repaid tax-free at a later date. After the gift, the FIC will hold cash, but also be liable to repay the debt, so the net value of the FIC is nil.

This means that any gift of shares immediately after the loan has been made will not have a value attached to them for IHT purposes.

How are FICs structured?

If we look at a common scenario, a couple (“the parents”) have sold their interest in a company and is left with a lump sum of cash. The parents have adult children and some grandchildren.

The parents trust their children, but there is a question about what might happen if one of them got divorced. The grandchildren are not in a position where they can responsibly look after substantial sums of money.

Mum and Dad create a FIC and make a loan of £1,000,000 to it. They issue four classes of shares:

• Voting shares, with no right to capital or income
• Ordinary A shares
• Ordinary B shares
• Ordinary C shares

The ordinary shares can have full rights attached to them, but maybe voting rights are restricted to just one class of shares.

Mum and Dad retain the voting shares and the ordinary shares are held by the children and a trust for the grandchildren.

The legal ownership of the shares with the voting rights will be arranged such that the parents have control of the voting rights. They can decided what dividends will be declared, how much and when.

This is why the share structure can seem more unusual than what you might find in your typical trading business. However, it allows for assets to be locked away in a corporate structure whilst minimising the risk of losing control. 

Essentially, this share structure allows the parents to maintain decision-making power over the investments, whilst stopping any further increased exposure to inheritance tax.

Why are different share classes used?

Whilst the value of the company may be nil or very low on creation, there isn’t usually the appetite for giving the full control and legal ownership of the company to say the children or grandchildren.

Governance

The parents will often act as Directors of the company, thus controlling the strategy, direction, and dividend payouts of the company.

This means that the children can benefit from the economic growth of the investments without being involved in the management of the company.

Dividends and gains

Capital Gains Tax (CGT) is still due on share transfers and asset disposals, which remains a key consideration to estate planning.

FICs do not qualify for Business Property Relief (BPR), so cannot be IHT-avoidant in that manner.

Are FICs better than trusts for estate planning?

This is often a question we are asked, but the truth is that many of the features of a Trust can be replicated within a FIC.

One key disadvantage of a FIC is that typically, shares will be placed into the hands of individuals. As they are the legal owners of the shares, they are open to attack in the event of a financial claim, such at insolvency or divorce.

However, careful drafting of the FIC’s Articles and Memorandum of Association can minimise the impact of such life events and avoid assets passing outside of the family circle.

Trust’s also have their disadvantages as you can only transfer a maximum of £325,000 of cash into a trust in lifetime before a 20% inheritance tax charge arises. Of course, as the settlor of the trust you could loan the cash to the trust, but in the event the loan is repaid, there can be complicated income tax implications for the settlor.

This is why Trusts and FICs are often implemented in unison with one another, so that the strengths compliment one another’s shortcomings.

Organise your estate 

Creating a Family Investment Company is not a decision to be taken lightly. The structure demands careful thought, from governance and tax implications to long‑term succession planning. For some, alternative routes may prove more suitable for your circumstances. Get in touch if you wish to discuss this in more detail with the Shorts Private Client Team. 

FAQs on FICs

Is a Family Investment Company a good idea?

FICs can provide significant benefits to families with complex estates, especially if they want to build and maintain generational wealth. However specific requirements must be met for families to enjoy the advantages, so financial advice should be sought to see if your circumstances meet the requisites. 

Can I put property into an FIC?

Yes you can, but be aware this can incur other costs such as Stamp Duty Land Tax and Capital Gains Tax. A professional financial adviser can assess any property you wish to add to an FIC against your business structure and suggest next steps. 

Can I find specialist advisers for Family Investment Companies near me?

Shorts' Private Client team has helped numerous business owners establish FICs in South Yorkshire, Derbyshire, and across the wider UK. If you have questions, you can contact us and outline your details using the criteria mentioned in our guide above, and our team can consult with you further.