Sharing Wealth Using Family Investment Companies

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Family Investment Company Tax Planning for Families and Advisers

By Dr Sam Hart CTA TEP

A family investment company (FIC) is a private company used to hold and manage family wealth. With bespoke share classes, articles of association and a shareholders’ agreement, it lets the founders keep control of investment and dividend decisions while future growth in value passes to children, grandchildren or family trusts. Changes to the taxation of trusts have made FICs an increasingly popular alternative to trusts, although the two can also be used together.

Written by private client tax and trusts specialist Dr Sam Hart, this comprehensive guide helps individuals, families and advisers understand how FICs can be used to build, preserve and pass on wealth in a tax-efficient and controlled manner. It explains the principles behind FICs, how they differ from trusts and the practical steps to set one up, fund it, run it and, if needed, exit it.

What Is a Family Investment Company?

An FIC is, at its simplest, an ordinary private company limited by shares that is used to hold and manage family wealth, such as cash, securities, property or interests in private businesses. The term is descriptive rather than statutory. There is no special tax regime for FICs: HMRC taxes them under the normal rules for companies, and because they have few shareholders they are almost always close companies.

What sets an FIC apart is its purpose, governance and funding. It invests rather than trades, is usually funded by family loans or share capital, and typically has several share classes: founders hold voting shares, while children and family trusts hold shares carrying dividend rights and future growth. Unlike a trust, which has its own law and tax rules, an FIC relies on company law and the corporation tax regime.

Family Investment Companies, Inheritance Tax and HMRC Risk

A main benefit of an FIC is removing future growth in value from the founders’ estates for inheritance tax, where it would otherwise suffer 40% IHT on death. An FIC funded by a loan is worth very little on day one, so family members or a trust can take shares at minimal value, and most future growth then builds up outside the founders’ estates while they keep control through their voting shares. Inside the company, most dividends received are exempt from corporation tax, so they can be reinvested gross rather than taxed at up to 39.35% in the founder’s hands.

But FICs are not off-the-shelf solutions. Directing dividends to a spouse or minor children can bring in the settlements legislation, gifts of shares or assets can have IHT and CGT consequences, moving property into the company can trigger CGT and SDLT, and shares in an investment company do not generally qualify for business property relief. A carefully structured FIC is unlikely to be viewed by HMRC as aggressive planning, but complex articles of association or funding structures can bring in anti-avoidance legislation, and poor governance can undermine the tax planning.

What This Report Covers

In 11 chapters, with 15 worked examples and four case studies, this 2025/26 guide covers:

• Introduction to Family Investment Companies
• Why Use an FIC?
• Key Structural Elements of an FIC
• The Importance of Governance in a Family Investment Company
• Directors' Duties and Responsibilities
• Shareholder Rights and Agreements
• Share Classes and Voting Structures
• Company Meetings and Record-Keeping
• Managing Family Dynamics and Communication
• Incorporating and Funding an FIC
• Exchanging Shares in Another Company
• Share Classes and Bespoke Articles
• Taxation of an FIC
• IHT or Succession Planning With FICs
• Day-to-Day Considerations of Running an FIC

And many more!

Setting up and funding an FIC

The four main ways to fund an FIC and their legal and tax consequences: subscribing for share capital, lending money to the company, transferring assets such as property or an investment portfolio in specie, and exchanging shares in an existing company. It explains why loan funding is so flexible, the CGT and SDLT cost of moving property into a company, and how a share-for-share exchange with HMRC clearance, followed by the substantial shareholding exemption, can shelter a later sale of a trading company.

Share classes, dividends and the settlements legislation

How to separate control from economic rights with voting, non-voting, growth, freezer and preference shares, and what bespoke articles should provide. The guide examines differential dividends on alphabet shares, the settlements legislation and the limits of the spouse exemption in Arctic Systems, including HMRC’s own example in its Trusts, Settlements and Estates Manual, as well as dividend waivers and the risk of value shifting.

Corporation tax and extracting funds

How corporation tax applies to an FIC’s dividend income, interest, rents and gains, and why the investment strategy matters when gains are taxed inside the company. It compares the ways to take money out, from dividends and tax-free loan repayments to salaries, loan interest and employer pension contributions, and why personal use of FIC assets can create a taxable benefit.

Inheritance tax and succession planning

How to move future growth out of the founders’ estates: gifting loan accounts as potentially exempt transfers, structuring alphabet shares so that growth accrues to the family shares, settling shares into a discretionary trust while they have little value, and issuing growth shares with a capital hurdle. It also covers how trust shareholders are taxed and why shares in an FIC funded by a share exchange are harder to give away.

Running an FIC and exit strategies

The day-to-day compliance of running an FIC, from statutory accounts and CT600 returns to VAT and the statutory registers, and practical ways to handle family friction, such as a family charter. The guide then compares the tax treatment of each exit route: loan repayments, dividends, liquidation, informal strike-off, share sales and buybacks.

HMRC’s view, technical points and case studies

What HMRC concluded after its specialist unit’s two-year review of FICs, which ended in 2021, and the technical points to consider, such as omission to exercise a right, alteration of capital rights, offshore FICs and valuation. The guide closes with four case studies, from a loan-funded FIC investing in stocks and shares to an FIC above a trading company with growth shares gifted to a trust.

Who Will Benefit From This Report?

This guide is essential for anyone involved in family wealth management, estate planning, or private investment strategy. It is written for readers who are familiar with company structures and tax concepts but may not be specialists in private client or corporate tax planning, and it is particularly beneficial for:

High-Net-Worth Individuals and Families:
Gain a deeper understanding of how FICs can safeguard and grow family assets across generations.

Tax and Financial Advisers:
Access practical insights into structuring and advising on FICs as part of comprehensive estate planning.

Accountants and Wealth Managers:
Learn how to implement and manage FICs for clients seeking long-term control and flexibility.

Solicitors and Legal Professionals:
Stay updated on the legal considerations, compliance obligations, and governance structures relevant to FICs.

Business Owners and Entrepreneurs:
Understand how FICs can be used to reinvest business profits and transfer wealth efficiently to the next generation.

By mastering the strategies and insights outlined in this guide, you’ll be equipped to use Family Investment Companies as a powerful tool for tax-efficient wealth management, ensuring your family’s financial legacy is secure for years to come.

About Dr Sam Hart CTA TEP

Dr Sam Hart CTA TEP has almost 30 years’ experience advising on private client tax, with a particular specialism in trusts. She is the managing partner of Rosegate Tax, and deals with high-net-worth and entrepreneurial clients, generally in the mid-market deal space.

Sam has been advising on family investment companies for a number of years and has a great deal of experience in implementing them as solutions for clients. She has written about them for Taxation magazine and is a regular contributor to Tax Insider. She is also an author for Bloomsbury Professional and holds a PhD in tax.

Read an excerpt from this report: Why Hold Your Family Investment Company in a Trust?