Family Investment Company: How It Is Set Up, Funded and Run

Quick answer: A Family Investment Company (FIC) is a private company that holds family wealth, usually with the parents controlling it and children or trusts owning the shares that take the growth. It does not remove existing wealth from your estate. It aims to stop future growth landing there as well. It tends to beat a trust when you want to keep control, gift shares as potentially exempt transfers and avoid ten-yearly trust charges.

What a FIC is

A FIC is an ordinary limited company. You, or you and your partner, put in money, usually partly as share capital and partly as a loan. The company invests. You hold shares that control it, and your children or a trust hold shares that take the growth. You can take your loan back over time, free of income tax, because it is your own money coming home.

It is a tool, not a plan. It works best alongside a will, lifetime gifts, pensions and, for some families, a trust.

How it is set up

1. Decide whether a FIC is the right tool. Compare it with gifts, a trust, a pension and holding assets personally.
2. Design the share classes. Parents often hold voting shares with a fixed capital entitlement, while growth shares go to children or a trust. This is sometimes called freezing the parents' value. The effect comes from how the articles of association are written, not from any tax statute.
3. Draft the articles and a shareholders' agreement. These deal with control, dividends, transfers and what happens on divorce or death.
4. Incorporate the company and open the bank and investment accounts.
5. Fund it. See below.
6. Document everything. Decisions on dividends and loans must be recorded properly.

It is usually cleaner to issue the right share classes when the company is formed. Changing the rights on existing shares in a close company can be treated as a disposition for inheritance tax, which cannot be a potentially exempt transfer.

How it is funded

Funding is where many FIC plans succeed or fail.

Cash. Putting cash straight into a company you own is a chargeable transfer for inheritance tax straight away. A potentially exempt transfer must be a gift to an individual or certain trusts, and a company is neither. It uses your £325,000 nil-rate band, and anything above can attract a 20% lifetime charge. Two safer routes are common:

• parents give cash to adult children, which is a potentially exempt transfer, and the children subscribe for shares;
• the parents lend to the company and take their own shares at full market value.

Our article on funding a Family Investment Company with a loan goes through the loan route.

Existing assets. Moving investments or property in is rarely tax-neutral. The company is treated as buying at market value, which can bring capital gains tax and SDLT. Incorporation relief can help for a genuine property business. Many families fund a FIC with new cash instead.

How it is run

A FIC must keep statutory books, file annual accounts and a confirmation statement at Companies House, file a corporation tax return and keep proper records. Accounts are public. Directors owe duties even when they are family.

Money comes out in three ordinary ways:

• repayments of your loan, which are not income;
• interest on the loan, which is taxable income to you;
• dividends, which are taxed on the shareholder.

Directors' pay is another option. A loan from the FIC to a shareholder faces a tax charge, at 35.75% for loans made from 6 April 2026, if not repaid in time, so it is rarely a good way to take money out. Plan withdrawals before the company is set up, not afterwards.

What it costs in tax

A FIC that mainly holds investments is a close investment-holding company. It pays corporation tax at 25% on taxable profits such as interest, rent and gains, whatever their size. It gets no annual exempt amount. But most dividends it receives from UK and overseas shares are exempt, so a share portfolio can compound with little tax inside the company.

Personally, dividends above a £500 allowance are taxed at 10.75%, 35.75% or 39.35%, and capital gains at 18% or 24% above a £3,000 exempt amount. Tax is paid again when money leaves the FIC as dividends, so the comparison depends on how much you need to draw. If you must spend all the income, the benefit is smaller.

FIC or trust?

A FIC tends to beat a trust when you want to stay in control as a director, you want to gift shares to adult children as potentially exempt transfers, and you want to avoid periodic trust charges. A trust is stronger on privacy, protection of vulnerable beneficiaries and flexibility over who benefits. Many families use both, with a trust holding some growth shares. Our article compares trusts and Family Investment Companies in more detail.

When a FIC is the wrong answer

A FIC is usually wrong when the amount is modest, when you may need the capital back, when you want to avoid public filings, or when the assets are mainly your home or a trading business that already qualifies for Business Relief. A FIC that mainly holds investments or lets property does not qualify for Business Relief on its shares. It is also not a quick inheritance tax fix: your retained shares and your loan stay in your estate, so your will must deal with them.

Example: A couple invest £1m in a FIC, lending £900,000 and subscribing £100,000 for shares. Over the years the company's value grows to £2m. The £900,000 loan, if still outstanding, remains in their estate, but the growth above the starting value sits mainly in the shares held by their children, outside it. These figures are hypothetical. Real outcomes depend on the share structure, investment returns and survival for seven years after any gifts.

Also avoid the common errors: giving shares to children without checking the capital gains tax on the gift, borrowing personally to fund a FIC and expecting interest relief, and moving property in without checking SDLT. Our article on five mistakes when setting up a Family Investment Company covers more. The full service page is Family Investment Company.

Talk to us about Family Investment Company

• A FIC is one tool, not a plan: it works best alongside gifts, trusts and a will
• It mainly caps your share of future growth rather than removing existing wealth from your estate
• A FIC that holds investments pays corporation tax at 25%, but most dividends it receives are exempt

See how we help or book a free 20-minute call.

FAQs

Does a FIC save inheritance tax immediately?

No. Value leaves your estate only when you give shares away or the company's growth accrues to other people's shares. A gift of shares to another adult is normally a potentially exempt transfer, free of inheritance tax if you live seven years. Shares you keep and loans you made stay in your estate.

Can I keep control after giving shares to my children?

Usually, yes. Parents often keep voting shares and act as directors, while others hold shares that carry the growth. Keeping votes is not of itself a reservation of benefit, but benefits connected to the gift, such as new pay or a buy-back right, can be. Careful drafting is what makes control and tax work together.

Are there tax traps when children hold shares?

Yes. Gifting shares is a disposal at market value for capital gains tax even though no cash changes hands, and holdover relief is generally not available for investment company shares. Dividends on shares given by a parent to a child under 18 are taxed on the parent above £100 a year. Adult children are taxed on their own dividends.

Can a FIC help protect shares if a child divorces?

It can reduce the risk, but not remove it. Useful features include articles that restrict transfers, non-voting growth shares, holding some shares through a trust and a shareholders' agreement. Family courts can still take company and trust interests into account, so we describe this as helping to protect, never guaranteeing.

How long does it take to set up a FIC?

The legal incorporation can be quick once the design is agreed, but the planning takes longer. Allow time to model the numbers, draft the articles and a shareholders' agreement, and agree funding and investment arrangements with your other advisers. Rushing the design is the common mistake.

Next step

If you are wondering whether a FIC belongs in your plan, we will tell you honestly, including when it does not. We offer a free 20-minute call to start. Book a call.