If you are a business owner or high-earning professional with accumulated wealth, you have probably asked yourself how to pass assets to your children without handing a large chunk to HMRC. One structure that comes up regularly in those conversations is the Family Investment Company, or FIC.

A family investment company uk is a private limited company set up specifically to hold and grow investments for the benefit of family members. It is not a special legal entity. It is a standard limited company, but its purpose is investment rather than trading. And that distinction matters for tax, for control, and for succession planning.

FICs are most common among families with significant liquid assets, typically £500,000 or more, though smaller portfolios can also work if the structure is right. They are used by business owners who have sold their company, by professionals who have built up large investment portfolios, and by families who want to bring the next generation into wealth management without giving away control.

This article explains what a family investment company is, how it works, the tax implications, and the situations where it makes sense. As ICAEW qualified accountants, we work with families across the UK, from the Northern Quarter in Manchester to the Harbourside in Bristol, and the questions are always the same: does it save tax, and who controls the money.

What Is a Family Investment Company?

A Family Investment Company is a standard UK private limited company. It is registered at Companies House, files annual accounts and confirmation statements, pays corporation tax on its profits, and is subject to the same rules as any other limited company. The difference is its purpose.

Instead of trading goods or services, the company holds investments. Those investments might be:

  • Shares in other companies (including the family's trading company)
  • Commercial or residential property
  • Bonds, gilts, and fixed-income securities
  • Listed equities and investment funds
  • Cash deposits
  • Alternative assets like private equity or venture capital trusts

The company is owned by shares held by family members. Typically, parents hold the majority of shares, often in different classes (alphabet shares) that carry different rights to dividends and capital. Children and sometimes grandchildren hold smaller shareholdings, often non-voting shares that entitle them to dividends but not control.

This structure gives the parents control over the company's investment decisions and the timing of distributions, while the children benefit from the growth in value over time. It is a way of passing wealth to the next generation without giving them immediate access to the capital or the income.

How Does a Family Investment Company Compare to Other Structures?

Before looking at the detail, it helps to understand the alternatives. The main options for holding family investments are:

  • Direct ownership by individuals. Simple, but income and gains are taxed at the individual's marginal rates. No control over timing of tax.
  • A trust. Offers flexibility and control, but trust tax rates are high (45% on income above £1,000, and 20% on most capital gains). Trusts also face periodic charges and a 10-year anniversary charge.
  • A Family Investment Company. The company pays corporation tax at 19% to 25% on its profits. Dividends paid to shareholders are then taxed at the shareholder's dividend rates (8.75%, 33.75%, or 39.35%). Capital gains within the company are taxed at 19% to 25% corporation tax rates, not the individual CGT rates.

The key difference is that the FIC defers the higher personal tax rates. The company pays a lower rate of tax on income and gains, and the family decides when to extract that money as dividends. If the children are basic rate taxpayers, they pay 8.75% on dividends received. If the parents are higher rate, they pay 33.75% on dividends. But the parents can choose not to take dividends, leaving the money inside the company to grow.

That deferral is the central advantage. It is not an avoidance scheme. It is a timing difference. But over decades, the compounding effect of paying 19% to 25% instead of 40% or 45% is significant.

Tax Implications of a Family Investment Company

Corporation Tax on Investment Income

The company pays corporation tax on its investment income and capital gains. For the 2025/26 tax year, the rates are:

  • 19% on profits up to £50,000
  • Marginal relief between £50,000 and £250,000
  • 25% on profits above £250,000

If the company holds a diversified portfolio, the profits will be a mix of dividends from other companies (which are generally exempt from corporation tax), interest, rental income, and capital gains. Each type of income is taxed differently, so the effective rate can vary.

Dividends received from UK and most overseas companies are usually exempt from corporation tax under the substantial shareholding exemption or the dividend exemption. Interest and rental income are taxed at the full corporation tax rate. Capital gains are charged at the corporation tax rate, not the individual CGT rates.

That last point is important. If an individual sells a rental property, they pay 24% CGT (higher rate). If a FIC sells the same property, the gain is taxed at 19% to 25% corporation tax. The difference can be substantial on a large gain.

Dividend Taxation When Extracting Money

When the company pays a dividend to shareholders, the shareholder pays dividend tax on the amount received. The rates for 2025/26 are:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher rate taxpayers
  • 39.35% for additional rate taxpayers

The annual dividend allowance is £500. Above that, the rates above apply.

The planning opportunity is to pay dividends to family members who are basic rate taxpayers, typically children or a non-earning spouse. Each child can receive up to £500 in dividends tax-free (using their dividend allowance) and then up to approximately £37,700 of dividends taxed at 8.75% (basic rate band). That is a total of roughly £38,200 per child per year, with tax of only 8.75% on the excess over £500.

Compare that to the parent taking the same income personally at 33.75% or 39.35%. The saving is significant.

Capital Gains Within the Company

When the company sells an investment at a gain, the gain is added to the company's profits and taxed at the corporation tax rate. The shareholder does not pay CGT directly. When the company later distributes the proceeds as a dividend, the shareholder pays dividend tax on the distribution.

This creates a double layer of tax: corporation tax on the gain, then dividend tax on the extraction. But the overall rate can still be lower than the individual CGT rate, depending on the shareholder's tax band and the company's tax rate.

For example, if the company sells shares for a £100,000 gain and pays 25% corporation tax (£25,000), the remaining £75,000 can be distributed as a dividend. If the shareholder is a basic rate taxpayer, they pay 8.75% on the dividend (after the £500 allowance), so roughly £6,500 in tax. The total tax is £31,500, an effective rate of 31.5%. Compare that to the individual CGT rate of 24% on the same gain (£24,000). The FIC route is worse in this scenario.

But if the shareholder is a higher rate taxpayer, the individual CGT rate is 24% on the gain (£24,000). The FIC route costs £25,000 corporation tax plus roughly £25,000 dividend tax (33.75% of £75,000), total £50,000. The FIC is significantly worse.

The lesson is clear: capital gains are usually better held personally, not inside a FIC, unless the gains are small and the shareholder is a basic rate taxpayer. The FIC works best for income-generating assets, not growth assets that will be sold.

Inheritance Tax Planning

One of the main reasons families use a FIC is inheritance tax (IHT) planning. The shares in the FIC are assets of the shareholders. If the parents hold the shares, the value of those shares is included in their estate for IHT purposes. But the parents can give shares to their children during their lifetime, and those gifts are potentially exempt transfers (PETs).

If the parents survive seven years after making the gift, the value of the shares falls out of their estate entirely. The children then own the shares, and any future growth in the company's value accrues to them, not the parents' estate.

This is a powerful planning tool. The parents can give away shares in the FIC while retaining control of the company's investments (if they hold voting shares). The children benefit from the growth, but the parents decide how the money is invested and when dividends are paid.

There are anti-avoidance rules to watch. The gift of shares is a disposal for CGT purposes, but if the shares are not sold, there is no immediate CGT charge. Instead, the children inherit the parents' base cost. And the gift must be made without any reservation of benefit. If the parents continue to receive dividends from the shares they have given away, the gift is ineffective for IHT.

Setting Up a Family Investment Company

The process is straightforward in legal terms. You incorporate a new limited company at Companies House, appoint directors (typically the parents), and issue shares to the family members. The company then opens a bank account and transfers the investments into its name.

The key decisions are:

  • Share structure. Alphabet shares are common. Parents hold voting shares (e.g., A shares) with rights to dividends and capital. Children hold non-voting shares (e.g., B shares) with rights to dividends but no voting power. This gives parents control while allowing children to benefit.
  • Articles of association. Standard articles may not be suitable. You need tailored articles that give the directors flexibility to declare dividends on different classes of shares and to restrict the transfer of shares to outside the family.
  • Shareholders' agreement. This is a private contract between shareholders that governs how the company is run. It is not filed at Companies House. It can cover dividend policy, share transfers, dispute resolution, and what happens on death or divorce.
  • Valuation. If you transfer assets into the company, you need a market value for CGT purposes. A transfer at an undervalue can trigger a deemed disposal at market value.

You should also consider the associated companies rules. If the FIC owns shares in another company, the two companies may be associated for corporation tax purposes. That affects the profit thresholds for the small profits rate and marginal relief. A FIC that owns a trading company could push both companies into the 25% rate sooner.

When Does a Family Investment Company Make Sense?

A FIC is not for everyone. It adds complexity, ongoing compliance costs, and a layer of tax on capital gains. It works best in specific situations:

  • You have a large, income-generating portfolio. Rental properties, bonds, and dividend-paying shares produce income that is taxed at lower rates inside the company than in the hands of a higher-rate individual.
  • You want to control when and to whom income is distributed. The company can retain income and pay dividends only when it suits the family, allowing tax planning year by year.
  • You want to pass wealth to children without giving them control. Non-voting shares let children benefit from growth while parents retain investment decisions.
  • You are planning for IHT. Gifting shares to children over time can reduce the estate value, provided the gifts are made without reservation.
  • You have a long investment horizon. The deferral advantage compounds over decades. A FIC held for 20 years can produce significantly more after-tax wealth than direct ownership, even after the double tax on extraction.

When Does It Not Make Sense?

  • Your portfolio is mainly growth assets you plan to sell. The double tax on capital gains inside a FIC is worse than direct ownership for higher-rate taxpayers.
  • Your portfolio is small. The costs of incorporation, annual accounts, corporation tax returns, and professional advice can outweigh the tax savings on a portfolio under £250,000.
  • You need regular access to the income. If you plan to take all the income out of the company each year, the FIC adds a layer of tax with no benefit. You are better off holding the assets directly.
  • You are a basic rate taxpayer. The corporation tax rate (19% to 25%) is higher than your personal tax rate on dividends (8.75%). You would pay more tax inside the company than you would personally.

Practical Considerations and Costs

Running a FIC is not free. You will need:

  • Annual accounts and corporation tax return (CT600)
  • Confirmation statement every 12 months
  • Bookkeeping for the investment transactions
  • Dividend paperwork and minutes
  • Share valuations for gifts and IHT planning
  • Ongoing tax advice

Our ICAEW qualified team typically sees annual compliance costs of £1,500 to £3,000 for a straightforward FIC, plus one-off setup costs of £1,000 to £2,500 for the incorporation, articles, and shareholders' agreement. That is not cheap, but on a £1 million portfolio the tax savings can easily justify the cost.

You also need to consider the administrative burden. The company must file accounts at Companies House, which are publicly available. Some families prefer the privacy of a trust, where the details are not on public record. A FIC's accounts are visible to anyone who searches the company.

Alternatives to a Family Investment Company

If a FIC does not fit, consider these alternatives:

  • Direct ownership with a bare trust for children. Simple, low cost, but the children get full control at 18.
  • A discretionary trust. More flexible for IHT planning, but trust tax rates are higher and there are periodic charges.
  • An investment bond. A life insurance policy that defers tax on investment growth. No control over timing of distributions in the same way.
  • A pension. Tax-free growth and tax relief on contributions, but limited access before age 57 (rising to 58).

Each option has different trade-offs. The right choice depends on your family's circumstances, your investment strategy, and your long-term goals.

Final Thoughts

A Family Investment Company is a legitimate, well-established structure for holding and growing family wealth. It offers control, deferral of personal tax, and IHT planning opportunities that other structures cannot match. But it is not a one-size-fits-all solution. The tax treatment of capital gains inside the company, the associated companies rules, and the ongoing compliance costs all need careful consideration.

If you are considering a family investment company, start with a clear picture of your portfolio, your family structure, and your timeline. Then speak to an accountant who understands the detail. The structure works well when it is set up correctly from the start. Getting it wrong can be expensive to unwind.

If you want to talk through whether a FIC fits your situation, get in touch. We work with families across the UK, from the Merchant City in Glasgow to the Quayside in Newcastle, and we can help you decide whether this structure is right for you.