Could a Family Investment Company help you manage tax and protect wealth?
For individuals and business owners looking to preserve wealth for future generations while maintaining control over their assets, Family Investment Companies (FICs) are an alternative option to trusts.
With the October Budget announcing changes to Capital Gains Tax (CGT), Business Asset Disposal Relief (BADR), and Inheritance Tax (IHT), many are exploring FICs as a tax-efficient way to structure investments.
FICs are an effective way to mitigate tax liabilities while ensuring long-term financial security.
The changes announced in the Budget mean that traditional methods of passing down wealth, such as direct gifting or trusts, may no longer be as tax-efficient.
FICs offer a way to retain control while minimising tax exposure, making them an increasingly attractive option from a tax perspective.
What is a Family Investment Company (FIC)?
A Family Investment Company (FIC) is a private limited company set up to hold and manage family wealth, often in the form of investment property, cash, or shares.
Instead of holding these assets in individual names or trusts, they are placed into the company structure, where different family members can be assigned shares according to a planned succession strategy.
Unlike a traditional trust, which may trigger IHT charges when assets are transferred, an FIC allows the original owner (usually a parent or grandparent) to retain control while gradually passing on wealth tax-efficiently.
Why use a Family Investment Company?
Instead of gifting assets outright (which could be subject to IHT if the donor dies within seven years), an FIC allows wealth to be transferred gradually through shareholdings.
As younger family members receive shares, any future growth in the company occurs outside the original owner’s estate, reducing future IHT liability.
Parents or senior family members can retain voting rights and decision-making power while allowing children or grandchildren to own non-voting shares.
This ensures that while wealth is passed down, strategic control remains with the founders.
FICs pay Corporation Tax on profits (currently 19 per cent for profits up to £50,000, 25 per cent above £250,000) rather than Income Tax, which can be as high as 45 per cent for individuals.
Unlike a traditional trust, there is no immediate Inheritance Tax (IHT) charge when setting up an FIC.
Different share classes allow for flexible dividend payments, which can help reduce overall tax liabilities.
Younger generations can receive dividends when needed, but you should reinvest profits if distributions would be inefficient.
How to set up a Family Investment Company
Setting up an FIC involves several steps:
- Incorporating the company
- The FIC is registered as a private limited company, with parents (or the original asset holders) as directors and family members as shareholders.
- Multiple share classes can be created to define voting rights and dividend entitlements.
- Transferring assets into the company
- This could include cash, investment portfolios, property, or business interests.
- Capital Gains Tax (CGT) may apply if assets have increased in value, so careful planning is needed.
- Setting up company governance
- A shareholders’ agreement outlines how shares can be transferred, who makes investment decisions, and how family members can benefit from the company.
- Managing tax implications
- An FIC needs to file annual accounts, pay Corporation Tax on profits, and comply with reporting obligations.
- A tax-efficient dividend strategy should be put in place.
Considerations and potential downsides
While FICs offer many benefits, they are not suitable for everyone. Here are some key considerations:
- Capital Gains Tax (CGT) on transfers – If an asset (such as property) is transferred to an FIC at a higher value than when acquired, CGT may be due immediately.
- Stamp Duty Land Tax (SDLT) on property – Transferring property into an FIC triggers SDLT at market value, including the additional five per cent surcharge for second properties.
- Costs and complexity – Unlike simple asset gifting, running an FIC requires ongoing company administration, tax filings, and governance structures.
Considering setting up an FIC? Our team of accountants are here to help.
If you would like advice on whether an FIC could work for you, contact us today.
