Family Investment Companies (FICs) are an effective way to protect and pass on your family wealth and introduce the new generations to decision-making about investments. FICs offer flexibility and a corporate structure will be familiar to most business owners.
FICs are companies set up to allow family members and family trusts to invest collectively in assets. FICs are typically UK incorporated and tax resident companies but can also be incorporated or resident overseas. You might choose an overseas incorporated or resident company for reasons including privacy, ease of management and the situs of shares. It is worth noting that UK company shares are within the scope of UK inheritance tax even if held by non-residents.
For UK companies, unlimited status is often preferred for privacy reasons as statutory accounts do not generally need to be filed at Companies House. However, shareholders remain liable for the company’s debts in the event of insolvency.
Changes to CGT business asset disposal relief (BADR) and the forthcoming changes to IHT business and agricultural reliefs (BR and AR) have forced business owners to reconsider their family wealth succession plans. In some situations, converting an existing trading company into a FIC may be attractive for business owners as part of their overall wealth succession plan.
Protecting family wealth for the next generation requires careful thought, planning and expert advice. With Inheritance tax changes coming in April 2026, now is the right time to start your planning. Book a no obligation conversation to discuss your succession planning needs.
Initial funding for the FIC is provided through a share subscription. This can be increased through further share subscriptions or by providing loans. Alternatively, if a trading company becomes a FIC, retained profits can be used to fund the investments.
A benefit of funding via a loan is that funds can be withdrawn from the FIC easily through the repayment of the loan and interest may be charged by the lender. Any interest would be taxable in the hands of the lender but would likely be deductible for the company. There are complexities. Individuals receiving interest are taxed only on a receipts basis but company relief will only be available on a paid basis if the interest is paid more than 12 months after its accounting period end. The paying company may be required to deduct basic rate income tax at source from interest payments. You should carefully consider whether the company will have sufficient taxable income and gains to absorb the cost and to what extent charging interest will negate some of the wealth transfer benefits of the FIC.
FICs can hold most of the asset classes that could be held by an individual or trust including investment portfolios, shares in a trading company and property.
In general, FICs are not appropriate for holding assets that are to be used personally by the family, such as art, homes, yachts or aircraft, because benefit in kind liabilities can arise. Homes held through companies can be subject to additional stamp duty on acquisition, an Annual Tax on Enveloped Dwellings (ATED) charge and cannot benefit from the capital gains tax principal private residence exemption on disposal.
Equally, certain types of investment may need to be held personally to benefit from tax relief, such as the Enterprise Investment Scheme.
Control can be exercised simply by holding shares carrying the majority of the votes. However, those rights carry implicit value, up to 30% of the equity value of the FIC, even in the absence of capital or dividend rights. This has implications if the shares are later transferred or remain in the founders’ estate on death.
But that’s not the only option, you can also establish control through a number of other means. You could be the trustee of a trust that holds the shares carrying majority voting rights. You could have a Shareholders’ Agreement or used "protected" directorships.
Taxable income and capital gains will be subject to corporation tax and further tax will be payable by the shareholders when after tax proceeds are eventually withdrawn.
FICs would normally be classed as a ‘close investment company’ so the corporation tax rate is usually 25%, as the lower small profits corporate tax rate will generally not apply. Otherwise, the FIC is taxed as any other UK resident investment company. Therefore, full tax relief should be available for any interest paid on loans (such as mortgage interest), and expenses incurred in managing the investments should be tax deductible.
A key benefit of holding investments in a FIC is that most dividends it receives would likely be exempt from tax, thereby allowing suitable dividend income to roll up within the FIC tax-free until withdrawn.
Some types of investment may be taxed under the ‘loan relationship’ rules whereby the FIC is taxable on the increase as it is recognised in the statutory accounts. As this would result in a ‘dry’ tax charge, care should be taken when investing in corporate bonds and other debt-based investments.
You can take funds out of a FIC in a number of ways including via the payment of dividends to shareholders, in the form of interest paid on the loan funding the FIC or by repayment of the loan.
Dividends paid to FIC shareholders will be taxed, typically at rates ranging from 8.75% to 39.35%. Shareholders could hold different share classes allowing dividends to be paid to family members according to family wishes. However, in certain circumstances, HMRC may invoke the settlements legislation if it believes income is being artificially diverted to lower rate taxpayers.
Where a shareholder is also employed by the FIC, the cost is likely tax deductible in the FIC to the extent that remuneration is at a commercial rate, but the employee will be taxed on their earnings through PAYE.
A gain on a capital receipt from the FIC, for example on liquidation or sale, would generally be subject to capital gains tax at up to 24%.
Getting specialist advice on the creation and structuring of a FIC is a very worthwhile investment. The advice will ensure the FIC meets the objectives you have set out for it.
Annual running costs should be comparatively modest, though statutory accounts, Companies House filings and corporation tax returns will be required. There may also be costs associated with managing any investment portfolio or property interests.
There are many ways to pass on your wealth to the next generation. It is important to set goals and discuss those with your family members. This will allow you to identify the relative advantages and disadvantages of a FIC for you and make informed decisions on the right solution for your family.
There is more information on your succession planning options in our Personal Tax Planning guide.
FICs are flexible and may suit your needs perfectly. However, there will also be situations where a trust or direct gifts of assets are more appropriate and effective. Key questions to consider when assessing whether FICs are right for you include:
We would be delighted to talk to you about the advantages and disadvantages of a FIC and whether it is right for you and your family. Book a no obligation conversation to discuss your succession planning needs.
