A Family Investment Company (FIC) can be an effective way to protect family wealth and manage Inheritance Tax (IHT), enabling business owners to pass wealth on to the next generation without relinquishing control of the assets today.
For successful business owners, building wealth is often only half the story. The bigger question eventually becomes: how do you pass that wealth to the next generation without simply giving up control of it today?
That question has become increasingly important following recent changes to Inheritance Tax:
- From April 2026: The amount of qualifying business and agricultural property that can benefit from 100% Business Relief is capped at £2.5 million per individual.
- From April 2027: Most unused pension funds and death benefits will also be brought within the scope of Inheritance Tax.
For some families, that means assets they had previously expected to pass relatively tax-efficiently to the next generation may now form a much greater part of their potential Inheritance Tax exposure.
One option increasingly discussed in this context is the Family Investment Company (FIC).
An FIC achieves this by separating control from economic value:
- Control stays with you: You retain full voting rights and remain company directors, keeping total authority over investment strategy, timing, and income distributions.
- Growth passes to the next generation: Children or grandchildren are issued non-voting “growth shares.” This directs future growth in asset value out of your personal estate for IHT purposes, while allowing your initial capital to be repaid to you tax-free via founder loans if needed.
Following recent tax changes, specifically the £2.5 million individual cap on 100% Business Relief (up to £5 million for married couples/civil partners) and bringing unused pensions within Inheritance Tax, FICs have become an essential corporate structuring tool for UK business owners with £2m+ estates.
But what exactly is a Family Investment Company? How does it work? And could it form part of your family’s long-term wealth and succession planning? Below, we explain how FICs operate, how they are taxed, and whether this strategy fits your family’s long-term succession plans. (For a complete technical breakdown and definition guide, read our in-depth article: Family Investment Companies Explained: The Complete Advisory Guide).
What is a Family Investment Company?
A Family Investment Company is, fundamentally, a limited company established to hold and manage investments on behalf of a family.
Rather than simply giving substantial amounts of cash or investments directly to children or grandchildren, a family can use a corporate structure through which different family members own different classes of shares.
Those shares can carry distinct rights:
- Control: Parents might retain voting shares and remain directors of the company, holding full control over investment decisions and day-to-day management.
- Growth: Children or grandchildren can hold a different class of non-voting “growth shares,” allowing them to benefit from some or all of the company’s future capital growth.
This creates an important distinction between control and economic ownership.
Parents may therefore be able to retain an appropriate degree of control over how family wealth is invested while beginning the process of passing future value to the next generation. That is one of the reasons FICs have become an increasingly important conversation in family wealth and Inheritance Tax planning.
Parents can retain an appropriate degree of control over how family wealth is managed, while beginning the process of passing future capital value to the next generation in a structured way.
How Does a Family Investment Company Work?
There isn’t a single “standard” FIC structure.
Typically, parents or grandparents establish the company and introduce capital into it through a combination of share capital and director loans.
Typical Holdings
The company then uses those funds to acquire investments, which might include:
- Investment portfolios and equities
- Cash and fixed-interest holdings
- Commercial or residential property
- Shares in unquoted or trading companies
Share Structures
Different share classes are established with tailored voting, dividend, and capital rights. For example, Mum and Dad might retain voting shares giving them control over the company while adult children hold growth shares designed to participate in future increases in the company’s value.
NOTE: The precise structure is critical. An FIC should never be regarded as simply “setting up a limited company for the children.” The share rights, funding arrangements, tax implications, and long-term family objectives must all work in harmony.
Why Are Family Investment Companies Used for Inheritance Tax Planning?
There is an important misconception that needs clearing up: a Family Investment Company is not automatically exempt from Inheritance Tax.
In fact, because an FIC’s activities consist wholly or mainly of holding investments, it will not normally qualify for Business Relief in the way a trading company might.
The primary Inheritance Tax benefit comes from shifting future growth in wealth away from the founders and toward the next generation.
Example: Imagine parents have £1 million in surplus capital which they do not expect to need personally. If they retain that money in their personal estate and it grows to £2 million over 15 years, the full £2 million remains exposed to Inheritance Tax.
With an appropriately structured FIC, the parents retain control while arranging for that £1 million of future growth to accrue to the growth shares owned by their children.
The objective isn’t necessarily to remove £1 million from an estate overnight. It is about deciding who benefits from the next £1 million of growth.
What if the Parents Lend the Money to the FIC?
One common approach is for parents to provide the initial capital by way of a loan to the company.
This can be attractive because the company owes that money back to the parents. The loan can be repaid over time, giving the parents tax-free access to capital if they require it in retirement.
However, the outstanding loan remains an asset belonging to the parents’ personal estate for Inheritance Tax purposes. Putting £1 million into an FIC as a loan does not instantly remove £1 million from an estate.
What it may do, depending upon the wider structure, is allow future investment growth to accumulate elsewhere while the original loan is gradually repaid, spent or dealt with as part of a wider estate-planning strategy.
Again, the value of the planning is often in what happens over time, rather than in an immediate tax saving.
What it does is allow future investment growth to accumulate in the children’s share classes while the original loan balance is gradually drawn down, gifted, or managed as part of a wider succession strategy.
Can You Gift Shares in a Family Investment Company?
Potentially, yes.
Shares in an FIC can be gifted to family members, though the tax consequences must be evaluated carefully before doing so:
- Inheritance Tax: Lifetime gifts of shares to individuals can become fully exempt if the donor survives for seven years after making the gift (Potentially Exempt Transfers).
- Capital Gains Tax & Valuation: Gifting existing shares can trigger Capital Gains Tax liabilities based on market valuation at the time of transfer.
This is precisely why FIC planning needs to happen before significant assets are transferred rather than trying to restructure everything afterwards.This is why FIC planning works best when established before assets grow significantly, rather than trying to restructure afterwards.
Why Not Simply Give the Money Directly to Your Children?
For some families, simply passing the money directly to your children may be the simplest answer.
If you have more money than you are ever likely to need and are entirely comfortable giving capital outright to adult children, a complicated corporate structure may be unnecessary.
But many parents aren’t comfortable with that.
You might want your children to benefit eventually, while still having concerns such as:
• What happens if my child divorces?
• What if they are financially inexperienced?
• What if one child is more responsible with money than another?
• What if I need some of the capital later?
• What if family circumstances change?
• What if I want to influence how the investments are managed?
• What happens when grandchildren arrive?
A Family Investment Company can potentially provide greater structure around these issues.
It can allow a family to think not just about tax, but about governance, control and succession.
If you have more money than you will ever need and are comfortable handing capital outright to adult children, a corporate structure may be unnecessary.
However, many parents have valid concerns about outright gifting:
- What happens if a child gets divorced?
- What if a child is financially inexperienced or irresponsible with money?
- What if you need access to some of the capital later in life?
- How do you balance provision between different children or grandchildren?
A Family Investment Company provides a formal framework around governance, control, and succession, allowing families to manage wealth responsibly across generations.
Family Investment Company vs. a Trust
FICs are often compared to trusts, but they are not interchangeable.
Trusts carry their own specific tax rules—including entry charges, 10-year periodic charges, and exit charges—which can make them less flexible for larger family investment holdings.
An FIC operates under corporate law and Corporation Tax rules instead. For some families, a trust remains the right mechanism; for others, an FIC offers greater operational flexibility. In complex scenarios, a combination of both may be appropriate.
The structure should always follow your family’s objectives—not the other way around.
How is a Family Investment Company Taxed?
An FIC is a company and is therefore generally subject to Corporation Tax on its taxable profits and gains.
For the 2026 financial year, the main Corporation Tax rate remains 25%, with a 19% small profits rate and marginal relief potentially applying between the relevant thresholds.
Many dividends received by UK companies are also exempt from Corporation Tax, subject to the detailed rules and exceptions.
This can make the corporate environment attractive for certain investment strategies.
However, that does not mean the money can then simply be withdrawn personally tax-free.
If profits are eventually distributed to individual shareholders as dividends, personal dividend taxation may arise. Other methods of extracting money can have different tax consequences.
It is therefore essential to look at both levels:
Because an FIC is a limited company, it pays Corporation Tax on its taxable profits and investment gains.
1. Corporate Level
Because Family Investment Companies are generally classified as Close Investment-Holding Companies (CIHCs), they do not qualify for the 19% small profits rate. The profits and gains within an FIC are subject to the main rate of Corporation Tax (25%). However, many dividend streams received by an FIC from UK or overseas trading companies are exempt from Corporation Tax (subject to certain conditions), making the corporate wrapper an efficient environment for reinvesting dividend income.
2. Personal Level
When profits are eventually extracted from the FIC to family members as personal dividends, individual dividend tax rates apply.
It is essential to evaluate both sides: what tax the FIC pays while wealth accumulates, and what tax family members pay when extracting funds.
What are the disadvantages of a Family Investment Company?
An FIC isn’t appropriate for everyone.
There are costs involved in establishing and operating a company. Annual accounts and Corporation Tax returns need to be prepared, Companies House obligations must be met and proper company records maintained.
There can also be considerable complexity around share classes, valuations, shareholder rights and extracting money.
Most importantly, setting up an FIC doesn’t automatically produce an Inheritance Tax saving.
If the founders retain all of the economic value, they may simply have moved their investments from one wrapper into another without materially changing their estate-planning position.
Good FIC planning therefore starts with the family – not the company.
Who Should Consider a Family Investment Company?
An FIC is worth exploring if you:
- Own a successful business and have accumulated surplus wealth or cash beyond your personal retirement needs;
- Hold substantial personal investments, cash reserves, or property portfolios;
- Want adult children or grandchildren to participate in future investment growth without relinquishing current control;
- Are concerned about your business or personal estate exposure to Inheritance Tax;
- Want to review whether surplus cash accumulating inside an existing trading business should be restructured.
It becomes particularly relevant where the conversation is no longer simply about making money, but about what happens to the wealth you’ve already created.
How might this work for a business owner?
How might this work for a business owner?
Consider a business owner in their late 50s or early 60s.
Over 25 years they have built:
a valuable trading company;
• substantial cash reserves;
• a pension;
• investments outside the business; and
• perhaps one or more properties.
Their children are adults and the parents have realised that, even allowing generously for retirement, they are unlikely to spend all of their accumulated wealth.
The traditional question might have been:
“How do I minimise my Inheritance Tax bill?”
We think the better questions are:
- How much money will you actually need?
- What wealth could you afford to pass to the next generation?
- How much control do you want to retain?
- Where should future investment growth accumulate?
- What happens to the trading business eventually?
Only once those questions have been answered does it make sense to decide whether an FIC, trust, outright gifting, company restructuring or another solution is appropriate.
How Palmers Accounting Can Help
At Palmers, we don’t look at Family Investment Companies in isolation. For business owners, corporate reserves, pensions, property, and personal wealth are deeply interconnected.
We work as part of a joined-up advisory team alongside your Chartered Financial Planner and Solicitor to look at the complete picture.
Together, we can help you:
- Assess Your Current Estate & Exposure: Review your trading business, property, investments, and pensions to model your potential Inheritance Tax position today and over a 10-to-20-year horizon.
- Evaluate Surplus Wealth: Use cash-flow analysis to help establish how much capital you realistically need to maintain your lifestyle, and what surplus can be earmarked for family succession.
- Review Corporate Structures: Evaluate whether surplus cash accumulating inside your trading company should remain there or be ring-fenced into a parent or holding structure.
- Model Scenarios: Compare the long-term tax and control outcomes of personal ownership, outright gifts, trusts, and FICs before making any commitments.
Explore Your Options with Palmers
If you have built substantial business wealth and want to review your Inheritance Tax exposure and succession options, we invite you to book an Exploratory Wealth Review.
We will evaluate your current structure, identify key succession challenges, and explore whether an FIC (or a simpler alternative) is the right fit for your family.
