A Family Investment Company (FIC) is a private limited company that is structured and run to hold, manage and grow family wealth in a controlled, tax-efficient way. It has become increasingly popular in the UK as an alternative to using trusts, especially since tax rules around trusts have tightened in recent years.
Here’s how it works and why families use them:
The basic idea
An FIC is usually created by parents or grandparents (the “founders”) who transfer cash, investments, or other assets into a company instead of holding them personally. The company then invests those funds, for example, in shares, bonds, property or other long-term assets, with the goal of growing the family’s wealth over time.
The key feature is that the founders retain control over the company, while passing the economic benefit of future growth to their children or other family members.
This is done through a careful division of share classes:
� Voting shares are typically retained by the founders, allowing them to make decisions and control distributions.
� Non-voting shares are usually given to children or held in trust for them, allowing them to benefit from dividends and capital growth without having day-to-day control.
Why families set them up
1. Control Parents often want to pass wealth to the next generation but are reluctant to give away full control. A Family Investment Company allows them to retain decision-making power while transferring future growth outside their estates.
2. Tax efficiency Companies are generally taxed at lower rates than individuals on investment income and capital gains.
� The Corporation Tax rate (currently 25 per cent for most companies) is often less than higher-rate personal income tax.
� Dividends received by a company from most UK and overseas shares are usually exempt from Corporation Tax.
� The company can also deduct certain expenses, such as management or professional fees, before tax.
When profits are eventually distributed as dividends, they are taxed in the hands of shareholders, but with careful planning, these can be allocated to family members in lower tax bands.
3. Inheritance Tax (IHT) planning By giving away non-voting shares early, parents can transfer future growth outside their estates. If those shares are gifted and the founders survive seven years, the value of those shares normally falls outside their taxable estate for IHT purposes.
Because the company structure fixes control and ownership separately, it avoids many of the risks of outright gifting.
4. Flexibility and investment control The FIC can hold a wide range of assets – from property portfolios to listed shares or even private equity. Directors (often family members) can decide how income and gains are reinvested, distributed or lent back to shareholders.
Typical structure
A common setup might look like this:
� The parents form a new limited company and subscribe for voting shares.
� They then introduce capital (either cash or investments) as a loan to the company.
� The company invests the funds.
� Over time, the loan can be repaid to the parents tax-free, while profits accumulate for the benefit of younger shareholders.
Sometimes, the company’s Articles of Association or a shareholders’ agreement will set out clear rules on dividends, share transfers and governance to avoid future family disputes.
Points to consider
� Costs and complexity: An FIC must prepare annual accounts, file returns at Companies House, and meet Corporation Tax and record-keeping requirements.
� Professional advice: Legal, tax and financial planning advice are essential at the outset, especially to draft share classes, shareholder agreements, and loan terms correctly.
� Double taxation: Profits are taxed in the company, and then again when paid out as dividends. Planning is needed to minimise this.
� Disclosure: Details of directors and shareholders appear on the public record, so privacy is reduced compared with a trust.
Summary
A Family Investment Company offers a structured, long-term way to manage and pass on wealth within a family while maintaining control. It combines corporate flexibility with estate planning advantages and can often be more efficient than trusts for families with significant liquid wealth or investment portfolios.
However, it is not suitable for everyone. The success of an FIC depends on careful setup, disciplined management, and ongoing professional oversight to ensure compliance and that it remains aligned with the family’s goals.
If you would like to explore whether a Family Investment Company might suit your circumstances, please call so that we can discuss your options before taking any action.