Family Investment Company: The Complete Guide
Thinking about how to grow and protect your family’s wealth for future generations? You're not alone. In recent years, Family Investment Companies (FICs) have become increasingly popular among UK families looking for flexible, tax-efficient ways to invest and pass on assets.
But what exactly is a Family Investment Company? How does it work? And more importantly, is it right for your personal financial journey? This comprehensive guide will walk you through everything you need to know about Family Investment Companies, step by step. By the end, you’ll have a clear understanding of how a FIC operates, its benefits and limitations, and how you might set one up for your family.
What Is a Family Investment Company?
A Family Investment Company (FIC) is a private limited company, usually set up by a family (or an individual for the benefit of their family), to hold and manage investments such as shares, property, or cash, rather than to trade goods and services.
While trusts have long been the traditional vehicle for passing on family wealth, recent changes in tax laws and tighter trust regulations have encouraged many families to consider FICs as an alternative.
Key characteristics of a Family Investment Company:
Owned and controlled by family members
Set up as a private limited company under UK company law
Holds investments (shares, property, cash), not actively trading
Can be structured flexibly to control ownership, voting rights, and access to income or capital
Why Set Up a Family Investment Company? Key Benefits
The main reasons UK families consider a FIC include:
1. Control
You, as the founder or parent, can remain in control of the assets and decisions, even as you gradually pass on ownership to younger generations.
2. Tax Efficiency
FICs can be more tax-efficient than personal ownership or trusts, particularly for high-net-worth families:
Corporation Tax: Investment income and gains are usually taxed at 25% (from April 2023, small profits rate applies for certain companies), which is often lower than higher or additional rate personal tax bands.
No upfront Inheritance Tax (IHT): You can typically transfer funds to the company without triggering immediate IHT charges, unlike with some trusts.
Distributions: Control when and how income is distributed to family members.
3. Flexibility
The company structure allows you to design tailor-made Articles of Association and Shareholders’ Agreements to set out exactly how the FIC operates.
Holding assets in a company can offer a layer of protection if family members divorce or face creditors.
Easier to manage the transition of wealth and control across generations by gifting or transferring shares over time.
How Does a Family Investment Company Work? Step by Step
Setting up a FIC involves a number of key stages, from planning through to ongoing management. Here’s how it works in practice:
1. Initial Planning: Is a FIC Right for You?
Before you leap in, consider:
Are you looking to grow, retain, and ultimately pass on assets?
Do you have a sizeable sum (typically £500,000+) to invest? FICs are most cost-effective for larger portfolios due to setup and running costs.
Are you comfortable with the reporting and governance requirements of a company?
Tip: Discuss your goals with an independent financial adviser and, ideally, a solicitor or accountant experienced in FICs.
2. Company Formation
How to set up a Family Investment Company:
Decide on the Company Structure
Most families choose a private company limited by shares (Ltd).
You’ll need to draft bespoke Articles of Association and/or a Shareholders’ Agreement to define who controls the company, who benefits from income or asset growth, and any restrictions.
Incorporate the Company
Register your company at Companies House.
Choose a company name, registered office, and at least one director and shareholder. Often, parents become directors.
Issue Shares
Decide who holds which classes of shares:
Voting shares for parents, giving control over decisions
Non-voting shares for children, allowing future growth to accrue to them
Example:
Parents set up ‘Smith Family Investments Ltd’, hold voting shares, and their two children (aged 25 and 28) are given non-voting shares.
3. Funding the Company
You need to move assets (cash, shares, or property) into the company. Common methods include:
Shareholder Loans: Parents lend money to the company, which is repayable at any time (useful if parents may need funds back in future).
Gifting Shares: Parents can gift shares to children over time, utilising their annual allowances for inheritance tax purposes.
Warning:
Transferring property or shares to the company can trigger Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT). Always seek tax advice before transferring assets.
4. Making Investments
Once funded, the FIC can invest in:
UK and overseas shares
Property (commercial or residential, noting tax considerations)
Fixed income investments (bonds, gilts)
Cash deposits
Investment decisions are usually made by the director(s).
5. Managing Income and Distributions
Income or gains generated inside the FIC are taxed using Corporation Tax rates.
Dividends or loan repayments can be made to shareholders (family members), often when it’s tax-efficient for them to receive it (e.g. students, lower-rate taxpayers).
Profits left inside the company can be reinvested and grow at the company level.
Tax Considerations for Family Investment Companies
Corporation Tax
All investment income and gains (apart from dividend income from UK companies, which can be exempt) are subject to Corporation Tax. From April 2023, the main rate is 25%, but companies with profits under £50,000 pay 19% (small profits rate).
Dividend Tax
If the FIC pays out dividends to shareholders, family members pay tax on those dividends at their personal rate. For up-to-date rates see HMRC’s official rates.
Transferring funds to the company is not generally subject to immediate IHT, but gifting shares to other family members is a ‘potentially exempt transfer’ (PET). If you live 7 years after the gift, it falls outside your estate for IHT.
Capital Gains Tax (CGT)
Gifting or selling assets (like property or shares) to the FIC can trigger a capital gain, depending on the growth since you acquired them.
Tax Tip:
The rules around FICs are complex and subject to change. You should consult a tax specialist before setting up a FIC.
Real-World Example: Setting Up a FIC
Case Study:
The Wilson family have £1.5 million in shares and savings. They want to pass assets to their two young adult children but keep control while their children are inexperienced.
The parents form ‘Wilson Family Holdings Ltd’, holding voting shares themselves, and issue non-voting shares to the children.
They loan £1.2 million to the company and gift some shares.
Over time, investment returns can be paid out to the family in a tax-efficient way.
After 7 years, gifted shares are outside the parents’ estate for IHT purposes.
Common Questions About Family Investment Companies
Is there a minimum amount needed to make a FIC worthwhile?
Usually, FICs are most efficient for families with £500,000+ to invest, due to setup and running costs (legal, accounting, Companies House fees).
What are the ongoing costs?
Expect to pay for annual accounts, tax computations, Companies House filings, and possibly legal fees for updating agreements—typically from £2,000 a year upwards.
Can I hold property in a FIC?
Yes, but residential property in a company may attract extra Stamp Duty (3% surcharge) and is subject to the Annual Tax on Enveloped Dwellings (ATED) for properties valued over £500,000.
Are there alternatives to a FIC?
Yes—trusts, direct ownership, pensions, and other vehicles may still suit some families better.
Where can I get more information?
It’s wise to consult your solicitor, accountant, or seek external guides from reputable sources like STEP, Chartered Institute of Taxation (CIOT), or GOV.UK.
Pros and Cons of Family Investment Companies
Pros:
Retain control while passing on value
Possible tax advantages
Flexible structure as family circumstances evolve
Efficient for larger portfolios and complex families
Cons:
Complexity and ongoing admin
Upfront and running costs
Some asset transfers can trigger tax charges
Changing tax rules may affect future effectiveness
Practical Next Steps: How to Set Up Your Own Family Investment Company
If you’re ready to explore a FIC for your family:
Discuss Your Goals: Start with a conversation among your family and professional advisers.
Engage Professionals: Find a solicitor and accountant with Family Investment Company experience.
Plan Your Structure: Decide on share classes, voting rights, funding strategy.
Form and Register the Company: Go through Companies House and set up the correct agreements.
Fund and Invest: Move investments into the company (watch for tax triggers) and begin your investment strategy.
Review Annually: Monitor tax changes, family circumstances, and adjust as needed.
Conclusion: Are Family Investment Companies Right for You?
A Family Investment Company can be a powerful vehicle for families who want control, tax efficiency, and flexible wealth planning for the long term. However, they are not a one-size-fits-all solution. Given the complexity and potential tax pitfalls, working with skilled professionals is essential.
Take time to explore your options, crunch the numbers, and clarify your aims before proceeding. With the right support, a FIC may provide the next step in your family’s personal finance success story.
