A family investment company (FIC) is a private limited company that holds a family's investments, cash and property, with parents keeping control through voting shares while future growth passes to their children through separate growth shares. It is used mainly for long-term wealth and succession planning in England and Wales, often as an alternative to a trust.
Most guides to family investment companies are written for £5,000,000-plus estates and skim over the two things that decide whether a FIC actually works: what it costs to take money back out, and the 2026 to 2027 tax changes that reshape the maths. This article covers both. A FIC does not make inheritance tax disappear; it shifts future growth out of the parents' estate and defers tax, and its real cost tends to show up on extraction. Figures are current as at August 2026 and subject to change.
What is a family investment company?
A family investment company is a private company set up to hold and grow family money rather than to trade. Parents (or grandparents) usually fund it with cash, then the company invests in shares, funds, bonds or property. Family members hold the shares, so the value sits with the family, while the founders keep day-to-day control.
It is a normal UK limited company incorporated under the Companies Act 2006, so it files accounts at Companies House and pays corporation tax like any other. What makes it a "family" company is the bespoke share structure and shareholders' agreement, which separate control from value so parents can pass on growth without giving up the reins.
How is a family investment company set up?
Setting up a FIC means incorporating a company, funding it, and designing the shares and rules so control and value sit where the family wants them. Most are formed in four steps, with legal and tax advice on the share design.
- Incorporate the company. Register a private limited company at Companies House, with bespoke articles of association drafted for the family rather than the standard model articles.
- Fund it. Parents usually put in cash, part as share capital and part as a director's loan. The loan can be drawn back later free of tax, because it is a repayment of capital, not income.
- Design the share classes. Create separate classes so founders hold voting control and children hold the shares that capture future growth (see the share classes below).
- Agree the rules. Put a shareholders' agreement in place covering who can sell shares, how dividends are decided, and what happens on death, divorce or a dispute.
Company formation records are public at Companies House. As at August 2026, subject to change.
How do the share classes work?
The share classes are what make a FIC useful for succession. Founders typically hold a class that votes but takes little or no dividend, so they keep control, while children hold a class that carries the dividends and all future growth in the company's value. The labels vary, but the split is usually described as A and B shares.
| Share class | Usually held by | Voting control | Dividends and growth |
|---|---|---|---|
| A shares (founder) | Parents or grandparents | Yes, full control | Little or none |
| B shares (growth) | Children or a trust for them | None or limited | Yes, capture future growth |
Because the founders keep the votes, they still decide what the company invests in and whether dividends are paid, even after they have given growth shares to their children. That balance of control now, value later is the main reason families choose a FIC over an outright gift.
How is a family investment company taxed?
A FIC pays corporation tax on its profits, at the main rate of 25% for 2026-27, because a close investment holding company does not qualify for the lower small profits rate or marginal relief. Money is taxed again when it is taken out as a dividend, so the structure works best when profits are left to roll up inside the company rather than drawn as income.
| Tax point | Treatment (2026-27) |
|---|---|
| Company profits and gains | Corporation tax at 25% |
| Dividends the company receives | Usually exempt from corporation tax |
| Dividends paid out to shareholders | Dividend tax at 8.75%, 33.75% or 39.35% |
| Repaying a director's loan | Tax-free (return of capital) |
The exemption on dividends received matters: a FIC holding shares in other companies can often reinvest the income without an immediate tax charge, which helps money compound. The catch is extraction, where corporation tax and then dividend tax can stack up (covered in what people get wrong).
Sources: gov.uk corporation tax rates and gov.uk tax on dividends. As at August 2026, subject to change.
How does a family investment company help with inheritance tax?
A FIC helps mainly by moving future growth out of the parents' estate. When parents gift growth shares to their children, the gift is a potentially exempt transfer, so there is no immediate inheritance tax charge, and if the parent survives seven years the value leaves the estate entirely (with taper relief on the tax if death falls between three and seven years). All growth after the gift belongs to the children from the start.
This worked example shows the mechanics on a parent funding a FIC with £2,000,000. Figures are illustrative and rounded.
- Fund the company. A parent lends or subscribes £2,000,000 into a new FIC, taking A (voting) shares and issuing B (growth) shares.
- Gift the growth shares. The parent gifts the B shares to the children. At the outset those shares are worth little, so the gift uses almost none of the £325,000 nil-rate band, and it is a potentially exempt transfer with no entry charge.
- Survive seven years. If the parent lives seven years from the gift, the B shares and all their future growth sit outside the estate for inheritance tax.
- Growth accrues to the children. If the investments grow to £3,000,000, the extra £1,000,000 belongs to the children's shares, not the parent's estate, potentially saving up to £400,000 of inheritance tax at 40%.
The parent still controls the company through the A shares and can draw the original £2,000,000 back as loan repayments if needed. A FIC does not shelter the cash the parent keeps, and it does not qualify for business relief, which from 6 April 2026 is itself capped at 100% relief on the first £2,500,000 of combined business and agricultural assets per person, and 50% above that; see our guide to business relief after the 2026 reform. Two other 2026 to 2027 changes push families towards planning now: the nil-rate band and residence nil-rate band are frozen until 5 April 2031, and from 6 April 2027 most unused pensions fall within inheritance tax. Gifting is one of several tools; see how much money you can gift tax free and our wider inheritance tax planning strategies.
Sources: gov.uk inheritance tax; nil-rate band freeze extended to 2030-31 at the Budget on 26 November 2025. As at August 2026, subject to change.
How does a FIC compare with a trust?
A FIC and a discretionary trust do a similar job, holding assets for the next generation while someone else keeps control, but they are taxed very differently. A trust can trigger an immediate 20% inheritance tax charge on value above the nil-rate band and faces charges every ten years; a FIC avoids both but taxes money on the way out instead.
| Feature | Family investment company | Discretionary trust |
|---|---|---|
| Charge on setting it up | None (gift of shares is a PET) | 20% on value above £325,000 |
| Ongoing IHT charges | None | Up to 6% every ten years, plus exit charges |
| Tax on income and gains | Corporation tax at 25% | Up to 45% income, 24% on gains |
| Control | Founders keep it via voting shares | Trustees hold it under the trust deed |
| Privacy | Accounts filed at Companies House | More private, no public accounts |
| Best suited to | Long-term growth, larger sums | Flexibility, protecting vulnerable heirs |
Neither is automatically better. Families wanting flexibility over who benefits, or protection for a vulnerable heir, often still prefer a trust; those focused on long-term growth of a larger sum lean towards a FIC. Some use both, with a trust holding the FIC shares. See what a family trust is and using trusts in estate planning for the trust side.
Trust charges: gov.uk trusts and inheritance tax. As at August 2026, subject to change.
What does a FIC cost, and when is it not worth it?
A FIC costs more to set up and run than a simple gift or will, because it needs bespoke legal drafting and annual company filings. Set-up fees commonly run from about £3,000 to £10,000, and annual accountancy from about £1,500 to £3,000, depending on how complex the portfolio and share structure are.
Those costs mean a FIC rarely makes sense below roughly £500,000 of investable assets, and advisers often see the clearest benefit from around £2,000,000 upwards. Below that, the running costs and the extraction tax can outweigh the inheritance tax saved.
A FIC is also the wrong tool in some cases. Residential property worth over £500,000 held in the company can attract the Annual Tax on Enveloped Dwellings, an extra annual charge. Assets that rely on personal reliefs, such as EIS investments or business relief on a trading company, lose those reliefs inside a company. And gifting growth shares that already have real value can trigger a capital gains tax charge for the parent, since there is no holdover relief on an investment company's shares. You can see how we work on our pricing page.
What do people get wrong about family investment companies?
Three misreadings come up again and again, and each can cost a family money: treating a FIC as a way to spend tax-free, assuming it wipes out inheritance tax, and fearing it is a loophole HMRC will close.
The biggest is extraction. A FIC is built for accumulation, not income. Profits taxed at 25% corporation tax, then taxed again as dividends at up to 39.35% when drawn, can leave a family worse off than owning the investments personally if the goal is regular spending money. The structure rewards leaving money inside to compound, not taking it out.
The second is expecting it to remove inheritance tax altogether. A FIC shifts future growth to the children and defers tax; it does not shelter the money the parents keep, and the seven-year clock still has to run for the gifted shares to leave the estate. Our inheritance tax guide sets out the wider rules.
The third is the loophole worry. HMRC set up a dedicated unit to review family investment companies in April 2019 and closed it in 2021, having found no evidence that they were used for tax avoidance. FICs are a recognised, mainstream structure, not a scheme, though tax rules can always change. Keeping the plan set down while parents have full capacity also matters, which is where a lasting power of attorney comes in.
Frequently asked questions
What is a family investment company in simple terms?
A family investment company is a private limited company that holds a family's cash, investments or property. Parents fund it and keep control through voting shares, while children hold shares that capture future growth. It is used for long-term wealth and succession planning in England and Wales, often instead of a trust (gov.uk, as at August 2026, subject to change).
How does a FIC save inheritance tax?
A FIC moves future growth out of the parents' estate. Gifting the growth shares is a potentially exempt transfer with no immediate charge, and if the parent survives seven years the shares and their growth fall outside the estate, potentially saving 40% inheritance tax on that growth. It does not shelter the money the parents keep or draw back.
What are the disadvantages of a family investment company?
The main drawbacks are cost, the double tax on extraction, and lost reliefs. Set-up and annual fees rarely justify a FIC below about £500,000 of assets. Money drawn out is taxed as corporation tax then dividend tax. Company accounts are public at Companies House, residential property can trigger the Annual Tax on Enveloped Dwellings, and business relief and EIS reliefs are not available inside a company.
Is a family investment company better than a trust?
Neither is always better. A FIC avoids the 20% entry charge and ten-yearly charges a discretionary trust can face, but taxes money when it is taken out. A trust offers more flexibility over who benefits and better protection for vulnerable heirs. FICs suit long-term growth of larger sums; trusts suit flexibility and control. Some families use both together.
How much does a family investment company cost to set up?
Set-up fees commonly run from about £3,000 to £10,000 for bespoke articles, a shareholders' agreement and share-design advice, with annual accountancy from about £1,500 to £3,000. Because of these costs, a FIC rarely makes sense below roughly £500,000 of investable assets, and the clearest benefit is usually from around £2,000,000 upwards.
How is a family investment company taxed?
A FIC pays corporation tax at 25% for 2026-27 on its profits and gains, as a close investment holding company does not get the small profits rate. Dividends it receives from other companies are usually exempt. When money is paid out to shareholders, dividend tax of 8.75%, 33.75% or 39.35% applies, so extraction is taxed twice (gov.uk, as at August 2026, subject to change).
Are family investment companies legal, or will HMRC close them?
They are legal and mainstream. HMRC set up a dedicated unit to review FICs in April 2019 and closed it in 2021, finding no evidence they were used for tax avoidance. They are treated as a normal planning structure rather than a scheme. As with any planning, tax rules can change, so figures and reliefs should be checked before acting.