Family Investment Companies (FICs): An Alternative to Trusts for IHT Planning

The Rise of the Family Investment Company

In the decade following the 2006 trust tax reforms, the family investment company (FIC) emerged as the vehicle of choice for many UK HNW families seeking an alternative to the discretionary trust for inheritance tax planning and family wealth governance.

A FIC is simply a private limited company owned and controlled by family members, used to hold and grow the family's investment portfolio. Unlike a discretionary trust, a FIC is a corporate entity with share capital, directors, and statutory governance. It is not a trust. The family members hold shares in the company — in different classes, with different rights — and the company accumulates investment returns with the benefit of lower corporate tax rates.

For internationally mobile and non-UK domiciled families, the FIC requires careful additional analysis: the UK rules differ from overseas equivalents, and the interaction with IHT, income tax, and capital gains tax for non-residents and non-domiciliaries must be modelled carefully.

This guide sets out how FICs work, their advantages and disadvantages, how they compare to trusts, and the particular considerations for international families. All figures and rules are as of 2026.

---

How a Family Investment Company Works

Basic Structure

A FIC is incorporated as a UK private limited company (or in some cases, as an offshore company — see below). The founding generation (typically the parents) make the initial investment by:

1. Subscribing for shares in the FIC — paying cash for ordinary shares
2. Lending money to the FIC — a shareholder loan, typically interest-free or at a low rate

Simultaneously, shares in the FIC are issued to children, grandchildren, or other family members — either directly or into trust for them. Because these shares are issued at the time of incorporation (when the FIC has no value beyond the initial paid-up capital), the "value" transferred to the next generation is nominal. Future investment growth accrues within the FIC for the benefit of all shareholders.

Share Classes

The power of the FIC structure lies in the use of multiple classes of shares:

• Ordinary A shares (parents): Full voting rights, possibly preference dividend rights, possibly priority on a return of capital. The parents retain control of the company through these shares.
• Ordinary B shares (children/grandchildren): No voting rights or limited voting rights, entitled to dividends declared on B shares, entitled to capital on a winding up. These shares pass value to the next generation.
• Preference shares (parents): Carry a right to a fixed, preferential return of capital on winding up, protecting the parents' loan/investment.

By retaining voting control through A shares, the founding generation remains in charge of the company's investment decisions and can control the timing and amount of any dividends paid to the next generation.

Investment and Returns

The FIC uses the initial capital (plus any subsequent contributions) to make investments: listed shares, bonds, funds, property (with care — see below), alternative assets. Investment returns — dividends, interest, gains — accumulate within the FIC.

The FIC pays corporation tax at the relevant UK rate (25% for profits over £250,000 as of 2026, 19% for "small profits rate" below £50,000, with marginal relief between). For most FICs with active investment returns, the 25% rate applies. This compares favourably to a personal 45% income tax rate on investment income for an additional rate taxpayer.

Capital gains realised within the FIC are also taxed at the corporation tax rate (25%), including a form of "indexation relief" for gains on assets held since before 2018. This compares favourably to the personal CGT rates of 18% (basic-rate band) and 24% (higher-rate), which since 30 October 2024 apply to both residential property and other assets, though the indexation advantage has diminished since rates have narrowed.

---

IHT Planning with a FIC

The Transfer of Value

When the founding generation subscribes for shares in the FIC and simultaneously issues shares to the next generation, the transfer of future growth to the next generation is not a transfer of value for IHT purposes — because the shares are issued at their nominal value at a time when the FIC has no accumulated value. Any gifts of existing FIC shares, however, would be a transfer of value.

Loans to the FIC

The founding generation's loan to the FIC is an asset of the estate — it forms part of the lender's estate for IHT. Strategies for gradually reducing the loan balance include:

• Waiving the loan gradually — releases the debt and reduces the estate, potentially as a potentially exempt transfer or within annual exemptions
• Repaying the loan with company dividends — although dividends are income of the recipient, dividends paid to the founding generation that they use to fund further consumption do not reduce the estate value unless spent

The loan is an important planning lever. Over time, as the loan is repaid or waived, the estate shifts value to the next generation's shares.

FIC Shares in the Estate

Shares in a FIC are assets of the estate of their holder. On death:

• Shares held by the founding generation are subject to IHT (at 40% above available nil-rate bands)
• Shares held by children or grandchildren are within their estates

Business property relief (BPR) may be available on FIC shares if the FIC carries on a qualifying trade or if the FIC's assets consist mainly of qualifying business assets. Most investment FICs do not qualify for BPR — HMRC takes the view that an investment holding company is not conducting a qualifying business activity. Care is needed if claiming BPR on a FIC.

Freeze on Value Growth

The key IHT benefit of a FIC is the value freeze: the founding generation's estate is frozen at the value of the loan (or initial subscription), while all future investment growth accrues in the next generation's shares. If the FIC grows from £2 million to £8 million over fifteen years, the £6 million of growth sits outside the founding generation's estate from day one.

---

Comparing FICs to Trusts

Feature	FIC	Discretionary Trust
Legal form	Company (corporate entity)	Trust (equitable relationship)
IHT on establishment	No entry charge (if structured correctly)	Potential entry charge at 20% above NRB
IHT on growth	Growth outside estate from day one	Relevant property regime (ten-year charge)
Income tax on returns	25% corporation tax	45% trust rate
CGT on returns	25% corporation tax	24% trust rate
Control	Retained by directors/voting shareholders	Trustees have fiduciary discretion
Flexibility	Share classes can be designed	Wide trustee discretion
Transparency	Companies House filing requirements	Trust Registration Service; less public
Anti-avoidance	HMRC scrutiny — watch s.1000 distributions	Well-understood tax regime
Offshore use	Possible but more complex	Standard — Jersey/Guernsey/Cayman

The FIC avoids the relevant property regime entry charge (which a discretionary trust faces if the settlor's available nil-rate band is used). This is its primary structural IHT advantage. However, the FIC's income is taxed at corporation tax rates rather than the trust's 45% rate, so the income tax position may be slightly more favourable for the FIC — but once distributions are made to shareholders as dividends, dividend income tax applies.

---

Extracting Money from a FIC

Funds in a FIC are locked inside the company until extracted. Methods of extraction include:

• Dividends: Taxed at dividend income tax rates (8.75% basic, 33.75% higher, 39.35% additional rate for 2026/27). Dividends can be paid selectively on different share classes.
• Director's salary: Subject to income tax and National Insurance — often less efficient than dividends.
• Loan repayments: The company can repay the founding generation's loan — not a tax event (the loan was after-tax money). This is often the most efficient extraction method.
• Winding up: On a liquidation, capital is returned to shareholders and may qualify for Business Asset Disposal Relief (BADR) at 18% CGT (for 2026/27, up from 14% in 2025/26) if qualifying conditions are met.

Tax planning around extraction is as important as the initial structure.

---

HMRC's View of FICs

HMRC has been alert to FIC structures for many years. A dedicated FIC Unit was established within HMRC's Wealthy team to investigate and challenge FIC arrangements. Key risk areas identified by HMRC include:

• Reserved benefit issues: If the founding generation retains access to the FIC's assets (for example, the company pays for their personal expenses), HMRC may argue a benefit is retained, bringing gift with reservation of benefit rules into play.
• Settlement legislation: If the FIC's structure results in income being paid to the settlor's minor children, the parental settlement rules may attribute that income to the parent.
• s.1000 distributions: HMRC may seek to reclassify as income any extraction that is not a straightforward dividend or loan repayment.
• Artificial structures: Excessively complex or uncommercial structures may attract challenge.

Professional structuring and ongoing compliance advice are essential.

---

FICs for Non-UK Domiciliaries and International Families

For non-UK domiciliaries, the FIC can complement or substitute for an excluded property trust in certain circumstances:

• Offshore FICs: A BVI or Cayman company used as a family investment vehicle can hold non-UK assets outside the UK estate. Dividends from an offshore FIC are treated as foreign income for UK tax purposes; capital gains within it may be subject to the offshore gains attribution rules.
• UK FIC for UK assets: A UK FIC holding UK securities (which would in any case be UK-situs assets subject to IHT for everyone) enables the value freeze mechanism.
• Combined structure: A non-UK trust holding shares in a UK FIC is sometimes used to capture both the excluded property status (for the non-UK assets within the trust) and the value freeze mechanism (for UK assets within the FIC).

The interaction with the UK's controlled foreign company rules, the transfer of assets abroad provisions, and the hybrid mismatch rules must be considered for offshore FIC structures.

---

Practical Considerations

Set-up: A FIC is simpler to establish than a trust — Companies House incorporation takes a few days. The share structure and articles of association require careful drafting by a corporate solicitor.

Ongoing governance: The FIC is a company — it needs properly maintained statutory registers, annual accounts filed at Companies House, and corporation tax returns. Family members need to understand their role as directors (with fiduciary duties) and shareholders.

Investment management: The FIC can appoint an external investment manager (such as a private bank or wealth manager) to manage the portfolio. The FIC is the contracting entity.

Minimum size: A FIC is generally cost-effective from £500,000 upwards. Below this threshold, the compliance and governance costs are disproportionate.

---

How Global Investments Can Help

Global Investments advises internationally mobile HNW families on whether a FIC, a trust, or a combination of both is the right approach for their estate planning and wealth management objectives. We work alongside specialist corporate solicitors, tax advisers, and accountants to structure and implement FICs correctly from day one.

We also manage the investment portfolio within FICs, providing ongoing investment advisory services that integrate with the family's overall wealth plan.

Contact us for a confidential discussion about FIC planning and whether it is right for your circumstances.

This guide is for general information only and does not constitute legal or tax advice. FIC planning is subject to complex rules and active HMRC scrutiny. Always seek qualified professional advice before proceeding. As of 2026.