Family Investment Company: The Complete UK Guide

What Is a Family Investment Company?

A Family Investment Company (FIC) is a private limited company set up specifically to hold and manage a family's investments — whether that's cash, shares, property, or other assets. Unlike a typical trading company, a FIC exists purely as an investment vehicle. Its purpose is straightforward: to grow and protect family wealth across generations while keeping the tax bill as low as legally possible.

The concept isn't new — wealthy families have used corporate structures for decades. But FICs have surged in popularity since the mid-2010s, partly because of changes to trust taxation that made trusts less attractive, and partly because the structure offers something trusts simply can't: the founder keeps control.

When you set up a FIC, you typically retain voting shares that give you full control over the company's decisions — what it invests in, when dividends are paid, and to whom. Meanwhile, your children or grandchildren hold a different class of shares that entitle them to the economic growth. It's a way of saying: “This wealth is for the family, but I'm still in charge.”

How Does a FIC Work?

The mechanics of a FIC revolve around its share structure. Most FICs use what are called alphabet shares — multiple classes of shares (A shares, B shares, C shares, and so on), each with different rights attached.

A typical structure might look like this: the founder holds A shares, which carry all voting rights and the right to appoint and remove directors. The founder's spouse holds B shares with dividend rights. Each child holds a separate class — C shares, D shares, and so on — each carrying rights to dividends and capital growth but no voting power.

This separation is crucial. It means the founder can decide exactly how much income each family member receives, and when. If one child needs support for a house deposit, the directors can declare a dividend on that child's share class alone. If the founder wants to reinvest profits rather than distribute them, they simply choose not to declare any dividends at all.

The company itself operates like any limited company: it has directors, files accounts with Companies House, pays corporation tax on its profits, and must comply with all the usual regulatory requirements. The difference is in the intention behind it — this is a vehicle for family wealth, not for running a business.

Tax Advantages of a Family Investment Company

The tax benefits of a FIC come from three main areas: income tax savings, inheritance tax planning, and capital gains tax deferral.

Corporation Tax vs Income Tax

Investment income held personally is taxed at your marginal rate — up to 45% for additional-rate taxpayers, plus the 2% dividend tax rate that applies above the dividend allowance. Inside a FIC, the same income is subject to corporation tax at 25%. That's a meaningful difference, especially for those generating significant investment or rental income.

For rental income specifically, FICs offer an additional advantage. Since the Section 24 mortgage interest relief changes, individual landlords can no longer deduct mortgage interest from rental profits — they receive only a basic-rate tax credit. A company, however, can still deduct mortgage interest in full. For a higher-rate taxpayer with a leveraged property portfolio, this difference alone can save tens of thousands of pounds per year.

Inheritance Tax Planning

This is where FICs really earn their keep. When you gift shares to your children, the value of those shares at the date of the gift is treated as a potentially exempt transfer (PET) for inheritance tax purposes. If you survive for seven years, the gift falls out of your estate entirely.

But here's the clever part: any growth in the value of those shares after the gift belongs to your children, not to you. So if you gift shares worth £100,000 and they grow to £500,000 over the next decade, only the original £100,000 was ever part of your estate. The £400,000 of growth passes to the next generation completely free of IHT.

Compare this to simply holding investments personally — every pound of growth increases your estate and your family's eventual IHT bill at 40%.

Capital Gains Tax Deferral

When a FIC sells an investment at a profit, the gain is subject to corporation tax rather than CGT. But more importantly, the gain stays within the company — there's no personal CGT charge until you extract the money. This allows you to reinvest the full (post-corporation-tax) proceeds without the drag of personal CGT, which can be up to 24% on investment gains.

FIC vs Family Trust: Key Differences

Before FICs became popular, family trusts were the go-to structure for intergenerational wealth transfer. Both serve a similar purpose, but they work very differently in practice. Here's how they compare:

The most significant advantage of a FIC over a trust is the combination of lower tax rates and continued control. Trusts suffer from punitive income tax rates (45% on most income) and the 10-year periodic charge, which effectively taxes the trust's assets at up to 6% every decade. A FIC avoids both of these.

Who Should Consider a Family Investment Company?

FICs aren't for everyone. The setup costs, ongoing compliance requirements, and complexity mean they only make financial sense above a certain threshold. Generally speaking, you should consider a FIC if:

• You have investable assets of £1 million or more that you want to pass to the next generation
• You own a property portfolio and are being hit hard by Section 24 mortgage interest restrictions
• You've sold a business and want to invest the proceeds in a tax-efficient structure
• You're a higher or additional-rate taxpayer with significant investment income
• You want to retain control over how and when your children access wealth

If you're cash-poor but asset-rich, a FIC can also help you restructure how your assets are held, potentially unlocking more efficient ways to generate income from your portfolio while planning for the next generation.

Setting Up a FIC: Practical Steps

Setting up a FIC involves more than just incorporating a company at Companies House. Done properly, it's a structured process that typically takes four to eight weeks. Here's what's involved:

1. Take professional advice. Before anything else, sit down with a specialist tax advisor — not a generalist accountant — who understands FIC structures. They'll assess whether a FIC is right for your circumstances and model the tax savings. You can connect with a specialist advisor here.
2. Design the share structure. Your advisor and solicitor will work together to design the alphabet share classes — who gets what rights, what restrictions apply, and how dividends can be allocated. This is the most important step and must be tailored to your family's specific situation.
3. Draft bespoke articles of association. Off-the-shelf articles won't work for a FIC. The articles need to be specifically drafted to reflect the share structure, director appointment provisions, and any restrictions on share transfers.
4. Incorporate the company. The company is incorporated at Companies House like any other limited company. Directors are appointed (typically the founder and spouse), and the shares are issued to family members.
5. Fund the company. The founder subscribes for shares using cash, or (with more complexity) transfers existing assets into the company. The tax implications of funding need careful planning.
6. Set up ongoing governance. Board meetings, annual accounts, corporation tax returns, and confirmation statements must all be maintained. Many families also create a shareholders' agreement to govern how the company operates alongside the articles.

Risks and Limitations

FICs are legitimate tax planning structures, but they are not without risk. Understanding the potential pitfalls is essential before proceeding.

Settlements Legislation

The settlements legislation (ITTOIA 2005, Part 5, Chapter 5) is the biggest legal risk for FICs involving minor children. If HMRC considers the FIC arrangement to be a “settlement” (broadly, a gift arrangement where the settlor retains an interest or benefit), income paid to or accumulated for minor children can be taxed on the founder. This risk is largely mitigated by only including adult children as income beneficiaries, but the legislation is complex and evolving.

The Ramsay Principle

The Ramsay principle allows HMRC to look at the substance of an arrangement rather than its legal form. If a FIC has been set up purely to avoid tax with no genuine commercial or family governance purpose, HMRC could argue that it should be disregarded for tax purposes. This is why having a genuine, documented rationale — wealth management, family governance, succession planning — is so important.

Loss of Personal Control Over Assets

While you retain voting control, the assets belong to the company, not to you personally. This means you cannot simply withdraw them at will without tax consequences. Extracting money from a FIC typically triggers income tax (if taken as dividends or salary) or CGT (if through a share buyback). You need to be comfortable that the assets you place in the FIC are genuinely intended for the long term.

Double Taxation on Extraction

Profits within a FIC are taxed at corporation tax rates, but they are taxed again when extracted as dividends (at dividend tax rates) or salary (at income tax rates). This “double taxation” means the overall tax rate on fully extracted profits can be higher than if the income had simply been received personally. The benefit only works if profits are retained and reinvested within the company for the long term.

For more on tax-efficient investment strategies that could complement a FIC, take a look at our guide to VCT tax relief, which offers income tax relief on investments held within the company or personally.