A Modern Wealth-Structuring Tool

In a period of evolving tax policy and increasing scrutiny of traditional succession vehicles, Family Investment Companies (“FICs”) have emerged as a key option in the private client planner’s toolkit.

A carefully structured FIC can provide control, flexibility and meaningful tax efficiencies for families seeking to preserve wealth across generations. However, they are not a panacea and must be considered within the broader context of UK tax law and recent inheritance tax (“IHT”) reform.

What is a Family Investment Company?

A FIC is a private company incorporated under the Companies Act 2006 with the primary purpose of holding investments is for the benefit of a family. Unlike discretionary trusts (which have been subject to punitive tax changes since 2006), FICs operate as bespoke corporate vehicles where the family can own, manage and grow a portfolio of assets within a corporate structure.

An FIC can be incorporated in the UK or overseas and managed in a way that ensures UK tax residence, depending on family circumstances and planning objectives. Structuring decisions, such as the use of multiple share classes, the allocation of voting versus economic rights, and the identity of directors are central to tailoring the vehicle to a family’s specific succession and control goals.

Why Consider an FIC? Key Benefits

1. Tax-Efficient Long-Term Investment Growth Assets held within an FIC are subject to corporation tax on income and gains (currently at the main rate of 25%). While higher than the small profits rate, this is often materially lower than the personal income tax (up to 45%) or capital gains rates individuals would pay on equivalent investment returns.

Corporation tax relief is also available on legitimate management expenses, including investment management fees, which are often not deductible to individuals.

2. Inheritance Tax Mitigation Through Share Gifts A core estate planning advantage of an FIC lies in the ability to gift company shares to future generations. Where such transfers qualify as potentially exempt transfers (PETs), the value can fall outside the transferor’s estate for IHT purposes provided the donor survives for at least seven years after the gift.

Compared to outright transfers of assets or transfers into discretionary trusts (which are subject to immediate lifetime IHT charges on amounts exceeding the nil-rate band), the PET regime, when used appropriately, can be more favourable for inter-generation planning.

3. Control and Flexibility Through tailored share structures, FICs allow founders and senior family members to retain decision-making control while allocating economic rights (dividends and capital growth) to younger generations. This split between control and economic interest is often central to succession governance without relinquishing overall family strategy.

Boards of directors, typically composed of family members or trusted advisors, determine investment policies and distributions, providing a corporate governance framework familiar to business owners.

4. Asset Protection and Wealth Structuring As a corporate entity, an FIC provides legal separation between personal wealth and the underlying assets, offering protection against personal liabilities and certain creditor claims. This can be particularly attractive in family situations involving business interests, professional risk exposure or complex family dynamics.

Recent Legislative Context — IHT Reform

The landscape for estate planning vehicles is shifting. From 6 April 2026, reforms to the IHT regime introduce caps on certain reliefs (notably Business Property Relief) and recalibrate the tax charge on qualifying business assets not fully covered by relief exemptions. Families holding trading businesses or contemplating FIC structures should revisit their planning assumptions in light of these changes.

These reforms have heightened the focus on structures that provide certainty and control in relation to estates, succession and inter-generation gifting. FICs, when structured with robust governance and compliant documentation remain a compelling alternative to traditional trusts, but they must be aligned with bespoke family goals.

Potential Drawbacks and Suitability Considerations

FICs are not without limitations:

• Costs and Complexity: Establishment and ongoing compliance from accounting and tax filings to board administration can be significant. Set-up expenses and annual running costs mean that FICs are most efficient for families with significant investible assets.
• Extraction Tax: Profits distributed by dividend are subject to personal tax in the hands of shareholders (with dividend tax rates still applying), and equity distributions on liquidation may attract income or capital taxes depending on the circumstances.
• Asset Types and Regimes: Holding certain asset classes, such as residential property, can trigger additional corporate-level charges (e.g., the Annual Tax on Enveloped Dwellings).
• No Automatic Relief: Unlike trusts enjoying historic tax treatments, FICs do not benefit from unique IHT reliefs; their effectiveness depends on gift timing, share structuring and surviving the PET period.

Comparisons with Trusts and Other Vehicles

FICs are increasingly viewed as an alternative to traditional trusts. Unlike trusts, where trustees hold legal title and exercise discretion, FIC shareholders retain ownership through corporate equity. This often appeals to families wishing to preserve involvement in investment decisions while managing legacy outcomes.

However, for some clients, particularly those with goals around pension-based sheltering or specific relief profiles, other vehicles like family pension arrangements may present complementary or superior tax outcomes when compared to FICs alone.

Practical Implementation — Key Steps

• Define Objectives: Is the primary goal tax efficiency, control, succession, or asset protection? Clear priorities shape share class rights and governance structures.
• Corporate Design and Documentation: Custom articles of association and shareholder agreements are central to preserving control arrangements and economic entitlements.
• Tax and Valuation Planning: Valuations of share gifts and projections of corporate profit growth should be co-ordinated with lifetime IHT planning horizons.
• Ongoing Governance: Annual returns, board oversight, and transparent investment reporting support both compliance and family communication.

Conclusion

FICs remain a versatile and sophisticated wealth planning vehicle under UK law. For high-net-worth families seeking to balance control, tax efficiency and succession, an FIC can offer a compelling alternative to conventional trust structures provided it is designed with expert legal, tax and governance support. Given recent tax policy developments, early engagement with advisers remains essential to align wealth structures with evolving legislative frameworks.

If you have any questions or wish to consider your family’s wealth planning, please do not hesitate to let one of our team know.

Rhea Rughani, Partner and Head of Private Wealth

RheaRughani@childandchild.co.uk, 020 7201 3575

Patrick TR Thornton, Partner and Head of Tax

PatrickThornton@childandchild.co.uk, 020 7201 3579

The information contained in this article is general guidance only. The application and impact of laws can vary widely depending on the specific facts involved. The information in this article is provided with the understanding that the authors and presenters are not giving legal, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional legal, tax or other competent advisers. Before making any decision or taking any action, you should consult a Child & Child professional.