Family Investment Companies, often referred to as FICs, have become increasingly popular in recent years, particularly as clients look for alternatives to traditional trust planning.
However, much of the commentary around Family Investment Companies in the UK is either overly simplistic or presents them as a “silver bullet” solution. In reality, they are neither.
Used correctly, a Family Investment Company can deliver a combination of tax efficiency, control, and succession planning. Used incorrectly, it can introduce unnecessary complexity with limited benefit.
In this article, we focus on how FICs work in practice, and crucially the tax advantages that underpin their use, so you can assess whether a Family Investment Company is the right strategy for your circumstances.
Looking beyond the structure: the tax position
At its core, a Family Investment Company is simply a company used as an investment vehicle. The planning opportunity arises from the difference between corporate and personal tax regimes, and the flexibility that a company structure provides.
For many of our clients, particularly higher and additional rate taxpayers, the key drivers behind using a Family Investment Company for tax planning are as follows:
1. Lower tax on investment income
Investment returns within a company are generally subject to corporation tax, currently up to 25%, rather than:
- 33.75% or 39.35% on dividends
- 40% or 45% on interest
This creates an immediate tax deferral and reinvestment advantage, particularly where income is not required personally and can be retained within the Family Investment Company.
2. Tax-efficient access via loan accounts
In many FIC structures, funds are introduced by way of a credit director's loan account.
This allows:
- Repayment of capital without any income tax charge
- Flexibility to draw funds over time
For clients who have sold a business or accumulated significant cash reserves, this is often a key advantage — access to funds without triggering dividend tax. If you are considering how to structure funds following a business sale, you can speak to our team.
3. Retaining control while shifting value
Through the use of:
- Alphabet shares
- Growth shares
- Different voting rights
- Trusts
It is possible to:
- Retain control at the senior generation level
- Allow future growth to accrue to children or trusts
From a tax perspective, this can support inheritance tax planning, particularly where future growth is moved outside the estate.
4. Flexibility over timing of tax
Unlike personal ownership, a Family Investment Company allows clients to:
- Control when profits are extracted
- Manage their personal tax profile year by year
This is particularly valuable where:
- Other income is already high
- There is no immediate need to extract funds
FICs in practice: real client scenarios
Case study 1: Wealth freezing with tax efficiency
A couple with c.£3–4 million of surplus capital wanted to begin passing wealth to their children but were concerned about losing control.
Their objectives were:
- Reduce long-term inheritance tax exposure
- Retain control over how assets were managed
- Avoid making outright gifts to children at an early stage
The key question was how best to structure this.
The alternatives considered included:
- Outright gifts — immediate reduction in estate for IHT purposes, however loss of control and exposure to 7-year survivorship risk
- Trust structures — greater control than outright gifting, but potential upfront inheritance tax charges (where nil rate band exceeded) and an ongoing trust tax regime (up to 45% income tax / 24% CGT)
Given the level of capital involved and the client's desire to retain flexibility, a Family Investment Company was implemented as the most appropriate route.
Planning approach:
- Funds introduced into the company via a loan account
- Growth shares issued to a family trust
- Parents retained voting and control shares
Tax outcome:
- Investment returns taxed at corporation tax rates, up to 25%, rather than personal rates of up to 45%
- No immediate income tax on retained profits
- Ability to extract funds via loan repayments without income tax
- Future growth accruing outside the estate, subject to survival and structuring
Commercial outcome:
- Full control retained by the parents
- Flexibility over timing and level of distributions
- A structured and gradual transfer of wealth
Case study 2: Using a holding company as an FIC post-sale
A common scenario arises where a client sells a trading company that is owned via a holding company structure.
Following the sale, the proceeds are received by the holding company, often with the benefit of the Substantial Shareholding Exemption, meaning little or no corporation tax arises on disposal.
At this point, the holding company is no longer a trading entity, but a cash-rich investment vehicle.
The key question then becomes whether funds should be extracted personally, triggering dividend tax, or retained within the corporate structure.
Extracting the proceeds personally would typically result in:
- Dividend tax at higher or additional rates, up to 39.35%
- A significantly reduced pool of capital available for reinvestment
Instead, we often advise clients to retain funds within the holding company and repurpose it as a Family Investment Company.
Planning approach:
- Retain sale proceeds within the holding company
- Reorganise share capital to introduce the next generation
- Structure ownership to separate control from future economic benefit
- Establish loan accounts where appropriate
Tax outcome:
- Investment returns taxed at corporation tax rates rather than personal rates
- No immediate dividend tax charge on reinvested funds
- Ability to extract capital over time at a controlled rate
- Opportunity to shift future growth outside of the estate
Commercial outcome:
- Greater capital retained for investment
- A clear platform for long-term family wealth planning
If you are reviewing your position following a business sale, it is worth discussing your options before extracting funds. Contact us.
Case study 3: Property investment — limits and opportunities
A client with an established portfolio of personally held residential properties approached us to explore whether a Family Investment Company could improve tax efficiency.
Like many landlords, they were:
- Subject to income tax at 40% or 45% on rental profits
- Impacted by restrictions on finance cost relief
- Considering succession planning
At first glance, a company structure appeared attractive. However, the position in relation to existing portfolios is rarely straightforward.
Key constraint — transferring existing properties:
- Capital gains tax on disposal
- Stamp Duty Land Tax, often at higher residential rates
While incorporation relief can defer capital gains tax in some cases, it is highly fact-specific and often difficult to achieve.
As a result, attempting to retrofit a Family Investment Company onto an existing portfolio is often not commercially viable.
Planning approach focused instead on future investment:
- Establish a Family Investment Company for new acquisitions
- Retain existing properties under current structures
Tax outcome:
- Rental profits taxed at corporation tax rates
- Full deductibility of finance costs
- Ability to reinvest profits without immediate personal tax
Succession planning advantages:
- Shares can be transferred gradually
- Control retained through structuring
- Significantly more straightforward than transferring fractional interests in individual properties
Commercial outcome:
- Clear separation between existing and future investments
- A more efficient long-term structure
- Flexible platform for introducing the next generation into ownership
Important: A FIC is not a "one size fits all" solution
While the tax advantages of a Family Investment Company can be compelling, they are not universally appropriate.
In our experience, the effectiveness of a FIC depends heavily on timing, asset profile, and long-term objectives.
For example:
- Post-sale scenarios
- Property portfolios
- Short-term cash requirements
More broadly, FICs involve important considerations including:
- Interaction between corporation tax and personal tax
- Loss of Business Property Relief
- Settlements legislation and value shifting rules
- Ongoing cost and complexity
A Family Investment Company should not be viewed as a standard product, but as part of a wider planning strategy.
The role of proper advice
A Family Investment Company is not simply a matter of incorporating a company and introducing family members as shareholders.
The effectiveness of the structure depends on:
- Share design and value allocation
- Settlements legislation
- Capital gains tax implications
- Inheritance tax planning
Equally important is the legal framework:
- Articles of association
- Shareholders' agreements
- Governance arrangements
FICs work best where there is a joined-up approach between tax, legal, and investment advisers. Ensuring that the tax structuring, legal documentation, and overall strategy are aligned is critical to achieving a robust and workable outcome.
In our experience, the success of a Family Investment Company is determined less by the structure itself, and more by how well it has been designed and implemented.
Next steps
Family Investment Companies can be a highly effective planning tool, but only where they are used in the right circumstances and structured appropriately.
If you are considering:
- Using a Family Investment Company after a business sale
- Long-term inheritance tax planning
- Structuring future investments
It is worth taking advice before implementing any arrangements. You can arrange an initial discussion with a member of our team. Contact us.