Estate planning has evolved substantially in recent years, especially given the increases in various taxes following recent Budgets.
Families are seeking effective, flexible, and structured ways to pass on wealth to future generations.
Family Investment Companies have been around for some time, but are now becoming increasingly popular.
Whilst trusts remain a useful tool, FICs have different advantages that appeal to high‑net‑worth families.
Our Wills, Trusts and Probate Lawyers look at what an FIC is, why you might set one up, the benefits, how it compares to a trust, and the key tax considerations.
What is a Family Investment Company?
A FIC is a private company. It is usually a standard company limited by shares and set up to hold and grow family wealth.
Instead of trading, it operates as an investment holding vehicle, owning assets that include cash, investment portfolios, property, and sometimes other business interests.
Ownership and control are separated by issuing different classes of shares with tailored voting, income, and capital rights, which is not too dissimilar to how a trust operates.
This allows parents (or even grandparents) to retain control while passing on value to their preferred beneficiaries.
Why set up a FIC?
A FIC is often used as part of a broader succession strategy.
Some of the main reasons for setting up a FIC include:
Control
Founders retain decision‑making authority, even after gifting shares to the next generation.
Tax Efficient
Compared with giving shares directly to individuals or into trusts, FICs can be more tax efficient, particularly for investment growth and retained profits.
Long-Term Family Governance
FICs allow families to adopt a structured, corporate approach to managing wealth, which can be more transparent than that of trusts.
Asset Protection
The use of different classes of shares, shareholder agreements, and articles of association can all be tailored to safeguard assets, manage distributions, and maintain family control.
Familiarity
Individuals accustomed to dealing with a company structure prefer the familiarity.
The Benefits of a FIC
Flexible Structuring
Different share classes allow you to separate out different aspects, including voting rights, entitlement to dividends and keeping capital growth out of the estate of the founders. This can make it easier to pass wealth on without losing control.
Lower Tax on Retained Profits
FICs pay Corporation Tax on investment profits and gains (currently lower than the higher and additional rates of Income Tax or CGT for individuals). If profits are retained within the company for reinvestment, this can accelerate growth.
Inheritance Tax (IHT) Planning
Gifting shares to an FIC can be a Potentially Exempt Transfer (PET). If the donor survives seven years, the value falls outside their estate for IHT purposes.
Creditor and Relationship Protection
Shares can be structured to reduce exposure to third-party creditors, for example, in divorce settlements, but are also useful to prevent misuse of assets by beneficiaries.
Efficient Wealth Transfer
An FIC allows parents to remove underlying capital value (and future growth) over time whilst maintaining oversight by remaining as directors of the FIC.
Why Choose an FIC Over a Trust?
Trusts remain essential tools in estate planning, particularly for confidentiality and certain asset‑protection advantages. However, many families are now turning to FICs for a number of reasons including:
Greater Long-Term Tax Efficiency
Trusts under the Relevant Property Regime can be taxed at higher tax rates if not properly managed, including:
- Income Tax at 45% on undistributed income
- 6% IHT ten‑year anniversary charge
- Potential entry charges if the value going into trust exceeds the Nil Rate Band (currently £325,000)
A FIC generally does not face these charges and benefits from lower tax rates on retained profits.
Fewer Legislative Restrictions
Trusts are subject to increasingly tight anti‑avoidance rules and complex compliance requirements which can include:
- Trust Registration (TRS)
- Legal Entity Identifier (LEI)
- Foreign Account Tax Compliance Act (FATCA)
- Automatic Exchange of Information (AEOI)
- Annual tax returns
Ability to Borrow and Reinvest Efficiently
Companies typically have better access to borrowing options, and gearing strategies are more straightforward within a corporate structure.
Tax Considerations for FICs
While tax is often a driver, it is important to understand the key UK tax implications for FICs:
Corporation Tax
The company pays Corporation Tax on:
- Dividends (often exempt if from UK companies)
- Rental income
- Capital gains
This is typically more favourable than personal rates.
Income Tax
If profits are distributed to shareholders as dividends, they will be taxed on the individual at their applicable dividend rates. The strategy often involves retaining income in the company to grow assets tax‑efficiently. If income is distributed, it would be best done in favour of lower or non-tax payers.
Inheritance Tax
Gifts of shares to family members are usually Potentially Exempt Transfers, meaning no immediate IHT unless the donor dies within seven years. Care must be taken for the person making the gift not to retain any benefit from the gift.
Anti‑Avoidance Rules
Professional advice is essential to ensure compliance with the relevant legislation and anti-avoidance principles. If transferring assets abroad, there are further rules to adhere to.
Stamp Duty and CGT
Transfers of property or other chargeable assets into a FIC may trigger Stamp Duty Land Tax or Capital Gains Tax, depending on the asset. Holdover relief is not available for transfers into a company.
Is an FIC Right for Your Family?
A FIC can be a useful tool for those with substantial assets, long‑term investment goals, or those who are looking for structured succession planning.
It offers flexibility, control, and tax efficiencies that some favour over trust arrangements. In some circumstances, using a combination of a FIC and trusts can provide the most beneficial outcome.
However, every family’s situation is unique. The best structure depends on asset type, family dynamics, long‑term objectives and tax considerations.
Contact Our Family Investment Company Experts
For more information about FICs or general estate planning, you can contact our Private Wealth team on:
0161 941 4000
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Bik-ki Wong
Partner and Head of our Wills, Trusts, and Probate
Bik-ki has over 20 years of experience acting as a Wills, Trusts, and Probate solicitor. Bik-ki is an expert in dealing with high net-worth individuals as well as those who have more complicated circumstances or those with mental capacity issues.
About Bik-ki Wong