If you’ve got wealth to protect and pass on, you’ve probably heard someone mention a Family Investment Company (FIC). They’ve become increasingly popular in recent years, and for good reason, but they’re not for everyone, and they’re definitely not a plug-and-play solution.
If you’re thinking of an FIC, here is what a Family Investment Company actually is, how it works, and whether it might have a role in your planning.
What is a Family Investment Company?
A Family Investment Company is exactly what it sounds like: a private limited company set up to hold investments for a family. There’s nothing exotic about the entity itself; it’s just a regular company. The clever bit is in the share structure and how control is separated from value.
Most FICs are limited companies, but some families opt for unlimited companies where privacy matters, since these don’t have to file accounts at Companies House.
For internationally mobile families, there may be reasons to incorporate offshore while keeping UK tax residence initially, but that comes with its own complexities around exit charges and long-term planning.
Why use a Family Investment Company?
The main driver is usually inheritance tax (IHT). Assets held personally form part of your estate on death and are typically taxed at 40%. But shares in a FIC can be gifted to children or grandchildren, and – provided you survive seven years – the value falls outside your estate with no upfront IHT charge.
Compare that to discretionary trusts, where gifts above the nil-rate band trigger an immediate 20% charge, plus 10-year periodic charges and exit charges thereafter. For families with significant wealth, a FIC can be a more scalable option.
How does the share structure work?
This is where a Family Investment Company earns its keep. The share classes can be designed so that:
- Control stays with the parents – through voting shares and director appointments
- Economic growth passes to the children – through non-voting growth shares
So the parents keep their hands on the steering wheel, while future value accrues to the next generation. Alphabet shares, growth shares, and preference shares all have a role to play depending on your objectives.
| Want to find out more about FICs and shares? Get in touch. We’d love to talk about your objectives and lay out all your options, so you can be sure you’re choosing the right one for you. |
What about tax inside the company?
One of the attractions of FICs is that investment returns are taxed within a corporate environment (often more favourably than personal taxation).
- Corporation tax is currently 25% for close investment holding companies
- Personal income tax rates go up to 45% (or higher for Scottish taxpayers)
- Most dividends received by UK companies are exempt from corporation tax
- Capital gains are taxed at corporation tax rates, not CGT rates
- Interest and management expenses are generally deductible
What does this mean for you? Lower tax leakage means more capital available for reinvestment, and that compounds over time.
But what about getting money out?
Tax efficiency on the way in doesn’t remove tax on the way out. Extracting value from a Family Investment Company, whether through dividends, salaries, or capital distributions, still triggers tax.
For this reason, FICs work best where the objective is long-term accumulation. If you need to extract income regularly to fund your lifestyle, a FIC might not be the right answer.
When might a FIC not be appropriate?
A Family Investment Company isn’t a universal solution. It may not suit you if:
- You hold residential property occupied by family members (ATED could apply)
- Your investments qualify for personal reliefs like Business Asset Disposal Relief, BPR, or EIS/SEIS
- Simplicity and short-term income extraction are your priorities
The question isn’t whether a FIC works in theory; it’s whether it works for your family.
| Wondering whether a Family Investment Company could work for you? Get in touch. We’d be happy to discuss this option with you to see if it has a role in your family’s planning. If not, we can also help you consider your other options. |
