Family trusts were for decades the default vehicle for high-net-worth UK families seeking to accumulate and transfer wealth across generations in a tax-efficient manner. Over the past decade, however, the tax treatment of trusts has become progressively less attractive: additional rate tax on retained income (45%), the ten-year periodic charge (up to 6% of trust value every ten years), and exit charges on distributions have all increased the cost of using trusts for wealth accumulation.
The Family Investment Company (FIC) has emerged as a compelling alternative — or supplement — to the family trust structure, particularly for families looking to accumulate wealth within a tax-efficient vehicle while retaining control over the assets.
What Is a Family Investment Company?
A Family Investment Company is a private limited company set up to hold investments on behalf of a family. The company holds the assets — shares, property, bonds, funds — and manages them for the long-term benefit of the family shareholders.
The key structural feature is the division of shares. Typically:
- The founders (usually parents) hold A shares or ordinary shares with full voting rights but limited or no rights to dividends or capital. This preserves control.
- The children and grandchildren hold shares with dividend rights and capital rights but no (or restricted) voting rights. This allows wealth to be distributed and transferred without surrendering control.
This structure is not a trust. The company is a legal entity in its own right, the directors manage its affairs, and the shareholders are the economic beneficiaries. There is no trustee fiduciary duty, no trust periodic charge, and no requirement for a regulated trust company.
The Income Tax Advantages
The primary income tax advantage of a FIC compared to an individual holding investments directly arises from the difference in tax rates.
Corporate tax rate vs personal tax. Income retained inside the company is subject to corporation tax — at 25% for profits over £250,000 (or 19% for smaller companies below the marginal relief threshold). An individual additional rate taxpayer pays 45% on earned income and interest, and up to 39.35% on dividends received personally. The FIC's 25% rate is significantly lower than the additional rate taxpayer's personal rate.
Over time, the tax saved on accumulated income compounds. A FIC earning £200,000 per year in investment income retains £150,000 after 25% corporation tax. The same individual paying 45% retains only £110,000. The compounding of the additional £40,000 per year inside the company, if invested for 20 years at a reasonable return, represents very significant additional wealth.
Dividend distribution strategy. The founding generation retains the control shares. Dividends can be paid to children or grandchildren who are lower-rate taxpayers — those with little other income pay dividend tax at 8.75% (basic rate) rather than 39.35% (additional rate). This "income-splitting" effect can save a large amount of tax annually, provided the family members receiving dividends genuinely have low incomes and the arrangements reflect genuine shareholdings.
Salary payments. Family members who genuinely work for the company — for example, managing the investment portfolio, overseeing property holdings, or carrying out administrative functions — can receive a salary. This salary is deductible against corporation tax profits. HMRC will scrutinise these arrangements; the salary must reflect genuine work performed at a commercial rate.
The Capital Gains Tax Advantages
Capital gains realised inside a FIC are subject to corporation tax at 25% — not the personal CGT rates of 18% (basic rate) or 24% (higher/additional rate) that now apply to both residential property and other assets for individuals (following the October 2024 changes). For higher rate taxpayers, the corporate 25% rate is broadly equivalent to the personal 24% rate, so the CGT advantage of the FIC over direct personal ownership is now modest; the more material benefit remains the income tax differential on retained investment income.
When a shareholder sells or transfers their FIC shares, the gain is the increase in the value of the shares since acquisition. The base cost of shares gifted to children at outset is typically very low (the nominal value of the shares, or the value of assets contributed). Future appreciation accrues in the company and is reflected in the share value.
On death, shares in a FIC are rebased to the date-of-death probate value — the same mechanism as any other asset. This is more favourable than a trust, where assets remain at their original cost for the purposes of any future disposal by the trust.
Inheritance Tax Considerations
This is the area where expectations of the FIC need to be carefully managed.
Gifts of FIC shares use the seven-year clock. When founders give FIC shares to children or grandchildren, these are potentially exempt transfers (PETs) for IHT purposes. If the donor survives seven years, the transfer is fully IHT-exempt. If they die within seven years, taper relief applies based on the number of years survived.
Business Property Relief does NOT apply. A common misconception is that a FIC qualifies for Business Property Relief (BPR), which would make the shares 100% IHT-exempt. In fact, a FIC that is purely an investment vehicle — holding shares, bonds, funds, or property — is not a "trading company" for BPR purposes. BPR requires mainly trading activity. A FIC holding passive investments does not qualify. The FIC is therefore not an IHT planning magic bullet.
The FIC vs trust comparison on IHT. A discretionary trust is subject to the entry charge (20% above the nil rate band at the time of transfer), the ten-year periodic charge (up to 6% of the trust value every ten years), and exit charges on distributions. A FIC avoids all these trust charges. For a family with substantial wealth to transfer, the saving over a ten-year period is material — though transfers into the FIC remain subject to the seven-year rule as with any gift.
FIC vs Trust: A Summary Comparison
| Feature | FIC | Discretionary Trust |
|---|---|---|
| Income tax rate on retained income | 25% | 45% |
| Ten-year periodic charge | None | Up to 6% of trust value |
| Exit charge on distributions | None | Yes |
| Control | Maintained (directors + voting shares) | Via trustee discretion |
| IHT on transfers in | Seven-year clock (PETs) | Entry charge if >NRB + seven-year clock |
| BPR available | No (investment company) | No (for investment trust) |
| Professional regulatory requirement | No (unless FSA authorised) | Potentially (regulated trustee) |
Practical Considerations
Mortgage finance. Companies generally cannot access the same residential mortgage products as individuals. Buy-to-let lenders offering company mortgages are growing in number, but the rates are typically 0.1–0.4% higher than personal rates, and director guarantees are usually required.
HMRC scrutiny. FICs are an established planning tool, but HMRC monitors income-splitting arrangements carefully. The income-splitting must be genuine — shares must confer genuine economic rights, dividends must be commercially justified, and salaries must reflect actual work. Arrangements designed purely to shift income with no substance risk challenge under the settlements anti-avoidance legislation.
Investment management within a FIC. The FIC itself may need to be careful about whether it is "carrying on a regulated activity" (investment management) that requires FCA authorisation. Most FICs are structured to hold investments managed by an external FCA-authorised manager rather than managing investments internally, to avoid this issue.
Stamp Duty Land Tax on property transfers. If an existing individual property portfolio is to be transferred into a FIC, this constitutes a disposal for CGT and SDLT purposes. It only makes sense for new acquisitions; converting an existing portfolio into a FIC structure is generally too costly.
Is a FIC Right for You?
A FIC makes most sense where:
- You have significant investable wealth (typically £500,000 or more to justify the setup and ongoing costs).
- You pay income tax at the additional rate.
- You wish to accumulate income in a tax-efficient wrapper without the complexity and cost of a trust.
- You want to involve the next generation economically (as shareholders) while retaining day-to-day control.
- Your time horizon is long — the income tax saving compounds over many years.
It may be less appropriate where:
- You want to make very large one-off gifts immediately (the FIC does not accelerate IHT planning in the way that a trust might in some circumstances).
- Your primary goal is asset protection from divorce or bankruptcy (a trust provides stronger protection in those scenarios).
- Your investable assets are below the threshold where costs are justified.
Important Considerations
Tax rules and rates change. The information in this article reflects the position as at June 2026 and is a general guide only. Nothing here constitutes tax or financial advice. The benefits of a FIC depend significantly on your personal tax position, the nature of the assets, and how the structure is implemented. Seek qualified independent tax and financial planning advice before establishing a FIC. Investments can fall in value as well as rise, and past performance is not a guide to future returns.
How Global Investments Can Help
Global Investments advises high-net-worth clients on the design and implementation of Family Investment Company structures as part of a broader intergenerational wealth planning strategy. We work alongside specialist tax solicitors and accountants to ensure the structure is appropriate for your circumstances, correctly established, and properly maintained. We can also manage the investment portfolio within the FIC, providing a coherent approach from planning through to execution. Contact our team to arrange a private discussion.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.