Many families want to pass wealth down to their children without handing over full control at a young age. For decades, trusts have been the go-to solution. But trusts can be costly to run, restrictive, and since the Autumn Budget 2025 changes to Agricultural and Business Property Relief they are also less tax-efficient than they once were for many estates.

A Family Investment Company (FIC) has become one of the most widely used alternatives. It gives parents a way to move wealth out of their estate over time, keep control of how that wealth is managed, and benefit from corporation tax rates on reinvested returns rather than personal income tax rates.

This guide explains what a FIC is, how it is structured, how it is taxed in 2025/26 and 2026/27, how to set one up step-by-step, and the common mistakes that catch families out.

What is a Family Investment Company?

A Family Investment Company is a UK private limited company set up by family members to hold and grow family wealth. It is incorporated at Companies House in the normal way and governed by the Companies Act 2006.

What makes it a “family” investment company is not a special legal status (there is none) but how it is used: the shareholders are family members, the share classes are structured so that value can be passed to children or grandchildren while parents keep control, and the company’s sole purpose is to hold investments rather than trade.

Typical FIC assets include:

• Cash, deposits, and bonds
• Listed shares and investment funds
• Buy-to-let and commercial property
• Private equity holdings

A FIC does not sell goods or services. It holds, manages, and reinvests.

FIC vs Discretionary Trust: which is right?

Before the FIC existed as a popular structure, discretionary trusts were the default. Both achieve similar aims but work very differently.

 

A FIC usually wins on flexibility and ongoing tax efficiency. A trust still has the edge where privacy matters or where the family wants more discretionary power over distributions. In practice, many families use both: a FIC to hold the investments, and a small trust to hold the FIC shares.

How is a FIC structured?

There is no single template; that is part of the appeal. But most FICs share a common pattern.

Voting (“A”) shares are held by the parents. These carry control rights: who is appointed a director, how the articles can be changed, what investments the company makes.

Non-voting growth (“B”) shares are held by the children, or by a trust for the children. These carry the right to dividends and to a share of capital growth, but no control. This is the mechanism that moves future wealth out of the parents’ estates.

Directors (usually the parents) run the company day-to-day and make investment decisions. They owe fiduciary duties to the company, not to any one shareholder.

The articles of association and a shareholders’ agreement set out the rules: how decisions are made, what happens if a shareholder dies or divorces, how dividends are declared, when and how shares can be transferred. Generic off-the-shelf articles are rarely sufficient for a FIC. Bespoke drafting is one of the main costs, and one of the main reasons FICs work.

How are funds put into a FIC?

There are three main routes, and most FICs use a combination.

1. Subscription for shares with cash. The founder pays cash into the company in return for shares. This is the cleanest route and attracts no immediate tax.

2. Director’s loan. The founder lends cash to the company on an interest-free (or low-interest) basis. The loan sits on the balance sheet and can be drawn down over time as tax-free loan repayments. This is often more tax-efficient than paying dividends out of already-taxed profits.

3. Transfer of assets. Property or listed shares are transferred into the FIC. This triggers Capital Gains Tax at the individual’s rate (18% basic rate / 24% higher rate from 30 October 2024) and, for property, Stamp Duty Land Tax on the market value. SDLT is often the single biggest cost of setting up a property FIC and needs modelling carefully before any transfer.

Case study: the SDLT shock. A London-based couple with a £2.4m buy-to-let portfolio across five flats wanted to “put everything into a FIC for IHT purposes.” They had read online that a FIC was the answer. When we modelled the transfer in, the SDLT bill alone came to roughly £180,000 (including the 5% additional-dwellings surcharge introduced on 31 October 2024). The projected IHT saving over the next ten years, assuming the couple survived the seven-year period, was around £120,000. They had almost paid a £60,000 premium to save tax. We restructured the plan to use a mix of gifts, a holding company for new acquisitions, and existing ownership, and saved the family most of the SDLT exposure. The lesson: model before you transfer.

How is a FIC taxed in 2025/26 and 2026/27?

This is the area where most online guides (including AI-generated ones) get things wrong. The detail matters.

Corporation tax

The headline UK corporation tax rates are 19% for profits under £50,000 and 25% for profits over £250,000, with marginal relief in between. Most FICs do not qualify for the 19% small profits rate.

The reason is the Close Investment-Holding Company (CIHC) rules at section 18N of the Corporation Tax Act 2010. A close company that exists wholly or mainly to hold investments is a CIHC, and a CIHC pays 25% corporation tax on all of its profits regardless of how small. Since a typical FIC exists to hold investments rather than trade, it will almost always fall within the CIHC rules, and families should budget on the basis of a flat 25% corporation tax rate.

Expect 25% on:

• Rental income
• Interest received
• Capital gains on investment disposals

Dividends received by the FIC from other UK or overseas companies are generally exempt from corporation tax under the dividend exemption rules. This is one of the genuine structural advantages of holding a share portfolio inside a FIC rather than personally.

Dividend tax when profits are extracted

When the FIC pays a dividend to its shareholders, the shareholders pay income tax on that dividend. From 6 April 2026, the rates are:

• Basic rate: 10.75% (up from 8.75%)
• Higher rate: 35.75% (up from 33.75%)
• Additional rate: 39.35% (unchanged)

The dividend allowance is £500 per person per year. For families looking at extraction strategy, the 2 percentage point rise from April 2026 materially changes the maths, and many advisers are recommending bringing forward dividends to before 5 April 2026 where the retained profits allow.

Capital Gains Tax

A FIC pays corporation tax at 25% on its capital gains. This is actually slightly higher than the current main rate of CGT for individuals (24%), so the CGT position inside a FIC is no longer a straightforward win. It is the combination of deferral, reinvestment of gross returns, and the ability to control the timing of extraction that makes the structure work.

Inheritance Tax

A FIC does not avoid IHT. It defers and reduces it, and only if it is used properly.

• Shares gifted to children (or to a trust) are Potentially Exempt Transfers. If the parent survives seven years, the value drops out of their estate completely.
• Retained shares remain in the parent’s estate and are valued at the date of death. Minority discounts can apply on valuation.
• Business Property Relief does not apply to a FIC because it holds investments, not a trading business. Any hope that BPR might shelter a FIC died with the Autumn Budget 2025 changes, which from April 2026 cap 100% BPR at £1 million per person and reduce it to 50% above that. These changes do not expand BPR to investment companies.
• The nil-rate band (£325,000) and residence nil-rate band (£175,000) remain frozen until April 2031.

The seven-year rule is central to FIC planning. Settle the structure early, gift early, and let the clock run.

Step-by-step: setting up a FIC

This is the sequence we take clients through.

Establish the objective. Is the goal IHT mitigation, income-splitting, control over a family business portfolio, a vehicle for a property portfolio, or all of the above? The answer shapes the share structure.

Decide on the asset mix. Cash subscriptions, loans, and transfers in kind each have different tax consequences. A property transfer can cost more in SDLT than the IHT saving is worth if it is not modelled in advance.

Design the share structure. Typically an alphabet-share arrangement with voting A shares for the founders, growth B shares for the children, and sometimes C/D shares reserved for future grandchildren or spouses. Get this right at incorporation rather than trying to restructure later.

Draft bespoke articles and a shareholders’ agreement. These documents are what give the FIC its teeth. They cover deadlock, transfer restrictions, drag-along and tag-along rights, what happens on divorce or bankruptcy of a shareholder, and how dividend policy is decided.

Incorporate at Companies House. Standard company formation with SIC code 64209 (activities of other holding companies) or 68209 (property management) depending on focus.

Open a business bank account. Often the slowest step. Allow four to eight weeks for high-street banks; challenger banks are faster but may have limits that do not suit a FIC.

Fund the FIC. Cash subscriptions or director’s loans are straightforward. Asset transfers need to be valued, documented, and reported (CGT returns where relevant; SDLT returns for property).

Register for corporation tax. HMRC registration within three months of becoming active.

Make the first gifts. Transfer growth shares to the children, or to a family trust that holds the growth shares. This is the point at which the seven-year IHT clock starts.

Put compliance on a calendar. Annual accounts, confirmation statement, corporation tax return, director’s loan account reconciliation, and ongoing dividend planning.

Realistic timeline from first meeting to funded, gifted FIC: six to twelve weeks.

Realistic costs

Families often underestimate the cost of setting up a FIC properly. A rough guide:

• Incorporation and basic set-up: £200 to £500
• Bespoke articles and shareholders’ agreement: £2,500 to £6,000
• Tax structuring advice: £1,500 to £5,000
• SDLT advice and returns (if property is transferred): £1,000 to £3,000 per property
• Annual accounts and corporation tax return: £1,500 to £4,000 per year
• Ongoing tax planning: variable

A properly set up FIC that starts with cash typically costs £5,000 to £10,000 to establish. Add property and the costs rise. Anything significantly below this range usually means corners are being cut on the legal drafting, which is exactly where the structure needs to be strongest.

When a FIC is the wrong answer

FICs get recommended more often than they should be. They are not suitable when:

• The value being sheltered is modest (as a rule of thumb, below about £500,000). The running costs can swallow the benefit.
• The family will want to extract most of the returns as income in the near term. The double tax charge (25% in the company, then up to 39.35% on dividends out) can be worse than holding personally.
• The founders are unlikely to survive the seven-year PET period. Consider whether a simpler Will-based plan achieves more.
• Assets are mainly in pensions or ISAs. These already enjoy favourable tax treatment; moving them into a FIC usually makes things worse.
• There is family conflict. The structure assumes the founders can make investment and dividend decisions jointly for decades.

Case study: the wrong tool. A recently widowed client in her late seventies approached us after being advised by an introducer to set up a FIC for her £800,000 portfolio of listed shares. The “plan” was to transfer the shares in, gift growth shares to her three adult children, and wait seven years. Given her age and health, the probability of surviving the seven-year PET period was the central question, and it had not been discussed. A simpler solution using normal PETs, pilot trusts, and a well-drafted Will achieved a better expected IHT outcome with far lower running costs and no CGT trigger on transfer. The lesson: a FIC is a long-horizon tool. If the horizon is short, look elsewhere.

Common pitfalls

A FIC fails when the family treats it like a piggy bank rather than a company. The most frequent issues that arise in practice:

• Director’s loan accounts that are never documented, leading to s455 tax charges and dividend-treatment arguments with HMRC
• Articles that do not deal with divorce, so a child’s ex-spouse ends up with growth shares in a family settlement
• Assumed IHT savings that never arrive because the founder does not survive seven years
• SDLT on incorporation of an existing rental portfolio that was never modelled
• Dividends declared without proper board minutes, which HMRC can challenge on reassessment

Most of these are avoided with upfront structuring and a disciplined annual compliance routine.

Overseas dividends and withholding tax

Where the FIC receives dividends from overseas companies, foreign withholding tax may be deducted at source. The UK’s network of double taxation treaties generally reduces the withholding rate to between 0% and 15%. Any withholding tax that cannot be reduced under a treaty can normally be credited against UK corporation tax on that income, though given most overseas dividends are exempt from UK corporation tax in the FIC’s hands, the credit often has no practical benefit. Treaty relief and refunds can be reclaimed but the process is administrative and slow.

Should you set up a Family Investment Company?

If you have significant investable wealth, children you want to benefit, and a willingness to run a small company for decades, a FIC is one of the most flexible and durable tools in UK tax planning. If you are looking for a quick fix, it is not.

The structure works because it combines three things: corporation tax rates on reinvested returns, control via share classes, and the seven-year gifting rule. Strip away any of those and the case for a FIC weakens.

Summing up

A Family Investment Company is a private limited company designed to hold and pass on family wealth tax-efficiently. It is subject to 25% corporation tax as a close investment-holding company, offers IHT planning through the seven-year rule, and gives founders long-term control over how wealth is managed and distributed.

It is not the right answer for every family, and it is not a DIY structure. Set up badly, a FIC can cost more than it saves.

We help families design, incorporate, fund, and run FICs that stand up to HMRC scrutiny and do what they were set up to do. Get in touch or call 03300 575 902 to discuss whether a FIC is right for your circumstances.

Frequently Asked Questions

What is a Family Investment Company (FIC)?

A Family Investment Company is a UK private limited company used by a family to hold investments, property, and cash, and to pass wealth to the next generation in a tax-efficient and controlled way.

Does a FIC pay 19% or 25% corporation tax?

Almost always 25%. A FIC is typically a Close Investment-Holding Company, which means the small profits rate of 19% and marginal relief do not apply. The 25% rate applies to all its profits regardless of size.

How does a FIC reduce inheritance tax?

Parents gift growth shares in the FIC to their children (or to a trust). Provided the parents survive seven years, the value of those shares falls out of their estates. Future growth also sits in the children’s hands from day one.

How much does it cost to set up a FIC?

A properly advised cash-funded FIC usually costs £5,000 to £10,000 to set up. Transferring property in adds SDLT and further advisory fees. Ongoing annual compliance is typically £1,500 to £4,000.

Is a FIC better than a trust?

Often yes for long-term investment and control, especially since trusts face a 20% lifetime IHT charge on values above the nil-rate band and 10-year periodic charges. Trusts still have the edge on privacy and trustee discretion. Many families use both.

Can I put my pension or ISA into a FIC?

No, and you should not want to. Pensions and ISAs already have favourable tax treatment that a FIC cannot improve on.

How long does it take to set up a FIC?

From first advisory meeting to a funded, gifted structure, allow six to twelve weeks. The bank account is usually the slowest step.

What happens to a FIC if the founder dies?

Shares the founder still owns are valued at death and form part of their estate for IHT. Shares already gifted more than seven years earlier fall outside the estate. The company itself continues, controlled by whoever now holds the voting shares.