A Family Investment Company (FIC) is a private limited company established to hold and manage family investments, such as property or shares as an alternative to a family trust. Usually, parents will establish the FIC for the benefit of their children and/or grandchildren.
A FIC is typically structured with different share classes to allow parents to retain control while passing economic value to the next generation in a controlled and tax-efficient manner.
There are many potential benefits to setting up a FIC.
The main purpose of a FIC is often to facilitate succession planning and pass wealth to the next generation in a controlled manner. Unlike a trust, value can be transferred gradually (for example through growth shares) without triggering an immediate Inheritance Tax (IHT) charge, provided the structure is implemented correctly. However, it is important to note that transfers of value into a FIC may still constitute potentially exempt transfers (PETs) or chargeable lifetime transfers depending on how they are structured.A FIC also allows much more flexibility than a family trust. For example, parents can lend money to the FIC and should the need arise they can draw money back out against the loan. This isn’t possible with a trust.
In addition, companies are generally subject to a clearer statutory framework than trusts and do not face the relevant property regime (ten-year and exit charges) that applies to most discretionary trusts.
A FIC can be funded in a number of ways. It can be funded through share subscription or by sale of assets to the company (however, this may trigger tax charges and potentially SDLT if property is transferred, but by far the most common way of funding is through loans.
A FIC can accumulate income and gains within the corporate structure. The company’s profits are subject to corporation tax (currently up to 25%, depending on the level of profits, with marginal relief available for profits between £50,000 and £250,000). This may compare favourably to income tax rates of up to 45% for individuals and 39.35% dividend tax rates for additional rate taxpayers.
However, there can be a second layer of tax when profits are extracted by shareholders, usually in the form of dividend tax. Careful planning is therefore required to manage the timing of distributions.
Capital gains tax (and possibly SDLT) has to be considered if transferring assets into a FIC. In addition, anti-avoidance legislation such as the settlements rules, transfer of assets abroad provisions, and (where relevant) the targeted anti-avoidance rule (TAAR) on distributions must be considered. Despite increased corporation tax rates, FICs can still be more tax efficient than other structures depending on the family’s objectives and investment strategy.
The company’s Articles will set out the various classes of shares issued by the company. These will usually consist of:
Ordinary shares with full voting rights – usually issued to the parents
Growth shares – usually issued to adult children or trusts for grandchildren.
In practice, the growth shares are usually bespoke alphabet share classes created to allow flexibility over dividends and capital rights, while ensuring that control remains with the founding shareholders.
Although the structure of a FIC may seem straightforward, tax implications, applicable legislation and administration can be complex.
There are potentially double taxes on the profits of a FIC, which may be subject to corporate tax and then distributed to shareholders who will be taxed on their individual income.
In addition, FICs are subject to full company law compliance requirements, including annual accounts, corporation tax filings, and confirmation statements. Where property is held, the Annual Tax on Enveloped Dwellings (ATED) may apply in certain circumstances (although relief is often available for commercially let property).
For these reasons, FICs are usually aimed at long-term capital growth.
We can provide tailored advice and support to help you set up and run a Family Investment Company. Our team has extensive experience in this area and can guide you through setting up an FIC. We can also provide ongoing advice and support to ensure your FIC runs smoothly.
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updated 8-9-26 Original March 23
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