Family Investment Companies Explained: How They Work and When They Make Sense
ent Companies (FICs) have become one of the most talked-about ways to preserve, grow, and pass on family wealth — especially since changes to inheritance tax (IHT) and business reliefs have made traditional trust structures less attractive.
If you’re a business owner in Greater Manchester, Cheshire, or Lancashire looking to involve your family in long-term wealth planning, here’s what you need to know.
What Is a Family Investment Company?
A Family Investment Company is a privately owned company set up to hold and manage family investments — typically cash, property, or shares — on behalf of family members and trusts.
Usually incorporated and tax resident in the UK, an FIC allows:
- Parents or founders to retain control via voting shares or directorships.
- Children or trusts to hold non-voting or dividend-bearing shares, building wealth over time.
It’s effectively a family “holding company” used to structure wealth within a corporate framework rather than a trust.
Why Are FICs Becoming Popular?
Recent and upcoming tax reforms have made FICs a useful alternative to trusts.
- Changes to CGT and IHT reliefs (effective from 2026) have reduced the scope of traditional business property reliefs.
- Corporate structures feel familiar to entrepreneurs who already operate limited companies.
- Control and flexibility: founders can define exactly who benefits, how profits are distributed, and when shares can be transferred.
Funding a Family Investment Company
You can fund an FIC in several ways:
- Share subscriptions – cash or assets invested in exchange for shares.
- Loans – you lend funds to the company; these can later be repaid to you without triggering additional tax.
- Retained profits – if converting a trading company into an FIC, existing reserves can fund investment activity.
Interest charged on loans is tax-deductible for the company and taxable to the lender, but timing matters: corporation tax relief only applies once interest is actually paid.
What Can an FIC Hold?
An FIC can hold almost any investment asset, including:
- Quoted and unquoted shares
- Investment portfolios
- Bonds and gilts
- Commercial or buy-to-let property
However, personal-use assets (like homes, art, yachts or cars) don’t belong in an FIC — they create benefit-in-kind issues and lose access to CGT reliefs like Principal Private Residence Relief.
How Control Works
Control is normally retained through voting shares or directorships. For instance:
- Parents hold shares with voting rights but limited or no dividend rights.
- Children or trusts hold non-voting shares that receive dividends.
Other options include:
- Using a trust to hold the voting shares.
- Implementing a Shareholders’ Agreement to define decision-making.
- Appointing “protected” directors to maintain founder oversight.
Tax Treatment of a Family Investment Company
Corporation Tax
The FIC pays corporation tax at 25% (close investment companies don’t qualify for the small-profits rate).
Dividend Income
Most dividends received by the FIC are exempt from corporation tax, allowing returns to roll up inside the company tax-free until distributed.
Interest and Expenses
Interest on borrowings and genuine management expenses are generally tax-deductible.
Withdrawals
Family members can extract value via:
- Dividends – taxed at 8.75% to 39.35% depending on income level.
- Loan repayments or interest – where the FIC was funded by shareholder loans.
- Salaries or director fees – deductible for the company, taxable to the individual.
- Capital receipts – e.g. on liquidation, taxed up to 24% CGT.
Benefits of Using an FIC
✅ Control: Founders retain management while transferring future growth to the next generation.
✅ Tax efficiency: Corporate tax rates and dividend exemptions can make accumulation more efficient than personal ownership.
✅ Succession planning: Shares can be gifted gradually to children or family trusts.
✅ Flexibility: Multiple share classes allow dividends to be tailored across family members.
✅ Confidentiality: Unlimited companies offer privacy (no public accounts filed).
Drawbacks and Risks
⚠️ Administrative burden: Annual accounts, Companies House filings, and corporation tax returns are mandatory.
⚠️ Professional costs: Legal and tax advice are essential to structure correctly.
⚠️ IHT exposure: UK company shares remain within the scope of UK inheritance tax even if the FIC is held overseas.
⚠️ Personal-use restrictions: Holding family homes or assets used personally can trigger ATED, SDLT surcharges, and benefit-in-kind tax.
⚠️ Anti-avoidance rules: HMRC can apply “settlements” legislation if income is diverted to lower-rate taxpayers without genuine transfer of rights.
Is an FIC Right for You?
A Family Investment Company can be ideal if you:
- Have significant investments and want to involve the next generation early.
- Want to retain control while reducing exposure to inheritance tax on future growth.
- Prefer a corporate structure over a trust for simplicity and familiarity.
However, it may not be the best route if:
- Your assets are personal or lifestyle-related.
- You require quick access to capital (withdrawals can be less flexible).
- Your estate size doesn’t justify the setup and ongoing costs.
The Bottom Line
Family Investment Companies are a powerful and flexible estate-planning tool — but they’re not one-size-fits-all. Their success depends on getting the structure, funding, and control balance right from day one.
With IHT and business relief changes due in 2026, now is the time to review your wealth-transfer strategy and ensure it still fits your goals.
Need Expert Guidance?
At CCM | Carter Collins & Myer, we help family-owned businesses and private clients design tax-efficient structures that protect wealth and prepare the next generation for ownership.
Contact us to discuss whether an FIC, trust, or other structure best fits your family’s long-term plans.
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