Family Investment Companies (FICs) are becoming an increasingly popular tool for preserving and passing on wealth.
Offering flexibility and the familiarity of a corporate structure, FICs can form a central part of long-term succession planning for business owners and families alike.
What is a Family Investment Company?
A FIC is essentially a private limited company established to hold and grow family wealth. Family members, or trusts for their benefit, can hold shares in the company, enabling collective investment in a wide range of assets.
It’s important to note that shares in UK companies remain within the scope of UK Inheritance Tax (IHT) — even if the shareholders are non-UK resident and shareholders of unlimited companies assume full liability for company debts in the event of insolvency.
How is a FIC funded?
FICs are typically funded through an initial share subscription. Additional capital can be introduced later through further share issues or by way of loans. In cases where a trading company is converted into a FIC, retained earnings may be used to fund investment activity.
Loan funding offers added flexibility, allowing the founder to withdraw funds through loan repayments. The lender may also charge interest, which is typically taxable to the lender and tax deductible for the FIC.
Before funding a FIC via a loan, it’s important to assess whether the company will have sufficient taxable income and gains to make interest deductions worthwhile, and whether charging interest could diminish the value passed on to the next generation.
What investments can a FIC hold?
A Family Investment Company can hold a wide range of assets, including:
- Investment portfolios
- Shares in trading companies
- Commercial and residential property
A FIC is generally unsuitable for assets that are intended for personal use, such as homes, yachts, or artwork. These can give rise to benefit-in-kind tax charges.
Residential properties held in a company may trigger additional Stamp Duty Land Tax, Annual Tax on Enveloped Dwellings (ATED), and may not qualify for principal private residence relief on sale.
Also, some tax-advantaged investments, such as those under the Enterprise Investment Scheme (EIS), must be held personally to benefit from tax relief, and therefore may not be suitable to hold within a FIC.
Controlling a FIC
Control is typically exercised by owning shares with voting rights. However, voting shares — even without rights to capital or dividends — can still carry value, which could impact estate planning.
There are other ways to retain control, including:
- Acting as a trustee of a trust that holds voting shares
- Implementing a carefully drafted Shareholders’ Agreement
- Appointing “protected” directors with reserved powers
These mechanisms provide flexibility and can separate control from economic benefit, which is often key in succession planning.
How are FICs taxed?
FICs are subject to UK corporation tax on their income and gains — currently at 25% for most investment companies.
FICs can offer tax efficiency as follows:
- Most dividends received by the FIC from UK or overseas companies are exempt from corporation tax
- Interest paid on loans and costs incurred in managing investments may be deductible
How can funds be withdrawn from a FIC?
Shareholders can extract value from a FIC in a number of ways:
- Dividends – taxed at the shareholder’s marginal dividend rate (currently 8.75% to 39.35%)
- Loan repayments – return of capital, not subject to income tax
- Interest payments – taxable income for the lender but potentially deductible for the FIC
- Employment – family members working for the FIC may receive salary, subject to PAYE
On liquidation or sale of shares in the FIC, any capital gains are typically taxed at rates of up to 24%.
FICs can issue different classes of shares, allowing for flexibility in how dividends are distributed among family members. However, care must be taken to avoid triggering the “settlements” anti-avoidance rules if HMRC believes income is being diverted to reduce the overall family tax bill.
What are the costs of running a FIC?
Setting up a FIC involves legal and tax structuring costs, but these are often outweighed by the long-term benefits of controlled wealth transfer and tax efficiency.
Ongoing costs include:
- Preparing annual accounts
- Submitting tax returns and Companies House filings
- Professional fees for investment or property management
In most cases, the running costs are modest, especially compared to the scale of assets managed within the FIC.
Is a FIC right for your family?
Every family’s situation is different. A FIC offers long-term planning flexibility and can be an ideal vehicle for managing intergenerational wealth — especially for entrepreneurial families or those with substantial investable assets.
However, other structures such as discretionary trusts, outright gifts, or personal ownership of tax-advantaged investments may sometimes be more appropriate.
Key considerations when assessing whether to set up a FIC include:
- What are your key objectives — wealth preservation, tax efficiency, or planning for the next generation?
- Do you want to pass on current value or only future growth?
- What level of control do you wish to retain?
- How involved will family members be in decision-making?
- Do you have assets already held personally that you’d like to transfer into the company?
Understanding the answers to these questions will help determine whether a FIC aligns with your family’s goals.
Increase in popularity
The phasing out of certain tax reliefs, such as Business Asset Disposal Relief (BADR) and forthcoming changes to Business and Agricultural Reliefs (BR and AR) in April 2026, has led many business owners to reassess their succession strategies. In some cases, converting an existing trading business into a FIC offers an attractive pathway to manage and pass on wealth.
Thinking About Succession?
Effective succession planning takes time and expertise. With tax reform on the horizon, now is a crucial window to explore your options. Speak to a trusted advisor about how a FIC could support your long-term goals.
Planning today could mean a more secure tomorrow for generations to come.
Contact us at enquiries@cowgills.co.uk for more information.
