Family investment companies: benefits, uses and risks

A family investment company is one of the more talked-about ways for a UK family to hold wealth. It is not a product or a scheme. It is an ordinary company, owned by family members and set up to hold investments, whose structure lets the people who built the wealth keep control of it while the growth passes to the next generation.

This guide explains what a family investment company (FIC) is, the benefits families look for, the situations in which one is used, and the risks and costs that are easy to overlook. It is general information; a FIC should only be set up on advice for your own circumstances.

Where this guide quotes rates, they are the rates for the 2026/27 tax year: corporation tax at the main rate of 25% and inheritance tax at 40%. Both can change.

What a family investment company is

A FIC is a private company, usually limited by shares and resident in the UK, whose purpose is to invest family money. It holds cash, shares, funds, bonds and sometimes other assets, and earns income and gains from them. It does not run a business.

What makes it a family investment company is the way it is owned and run:

• the founders, typically parents or grandparents, put money into the company and usually serve as its directors;
• family members, usually children or grandchildren, hold shares, either directly or through a trust;
• the company's Articles of Association and a shareholders' agreement set out who controls it, who receives what and what happens when family circumstances change.

Because the company is the owner of the investments, the family's wealth sits in one place, with one set of accounts and one set of rules.

The main benefits

Inheritance tax planning. Shares given to children or other individuals are normally potentially exempt transfers. If the person making the gift survives seven years, the shares fall outside their estate for inheritance tax. Growth in the company after the gift belongs to the new shareholders, not to the founders' estates. Where the founders keep a sizeable holding, the value of a minority interest in an unquoted company can be lower than a simple proportion of the whole, which may reduce the value taxed on death. How much is a valuation question, and one HMRC can challenge.

The benefit is mainly on future growth. Money the founders lend to the company stays in their estate until it is repaid or given away, and voting shares the founders keep can carry a value of their own for inheritance tax, even when they carry no right to income or capital. A FIC freezes the founders' exposure to future growth; it does not remove the capital they put in.

Control. The founders can keep voting rights and a seat on the board whatever the split of the economic ownership, so they decide how the money is invested and when profits are paid out. Family members who hold shares without voting rights have a stake in the value without a say in the decisions.

Tax on the company's investments. Income inside the company is subject to corporation tax rather than personal income tax. For a person paying higher or additional rate tax, the company's 25% can be lower than their personal rate on interest and rent, and dividends the company receives from other companies are generally exempt, so income can build up and compound. Capital gains are different: the company pays 25% on them, slightly more than the 24% higher rate for an individual. The advantage lies mainly with income, with dividends received and with keeping money invested, not with gains.

Flexibility. Different classes of shares can carry different rights to dividends, to capital and to votes, so a family can direct income or growth where it wants within the tax rules. The directors also decide the timing of dividends, which lets the family manage when shareholders pay tax.

Governance. The company and its agreement give the family a framework for decisions: how the money is invested, when dividends are paid, whether shares can be sold and to whom, and what happens on a divorce, a death or a falling-out. For many families the conversation needed to set this up is as valuable as the structure.

A degree of protection. A shareholders' agreement can restrict transfers and keep shares within the family. It cannot guarantee protection: a court dealing with a divorce, for example, can still treat shares as a resource.

Common uses

• Parents passing wealth to children while keeping control. The classic use: the parents fund the company, give shares to the children, and stay in charge as directors with the voting rights.
• Grandparents building wealth across generations. Shares can be issued to children and grandchildren, with the older generation retaining the board.
• Holding the proceeds of a business sale. A founder who has sold a company may hold the proceeds in a FIC so that further growth accrues to the family rather than the founder's estate.
• An alternative or complement to a trust. Some families prefer a company's governance and tax treatment to a trust's, and some use both, with a trust holding shares. See family investment company or trust.
• Putting order around the family's investments. Scattered holdings in several names can be gathered in one entity run to clear rules, with one set of accounts and clear reporting.
• Preparing the next generation. A real company, with real accounts and real decisions, is a practical way to teach younger family members about money and responsibility.

Who a FIC suits

A FIC is usually worth considering when:

• the family has investable capital it does not need to live on, commonly in the millions;
• the founders want to reduce a future inheritance tax bill and are in good enough health that the seven-year period is realistic;
• they want to keep control while passing on the growth;
• the investment horizon is long, measured in decades;
• and the family is willing to run a company, with accounts, filings and meetings.

It is usually not the answer when the founders need the income or the capital back, when the sums are small, when the family wants to hold homes, art, yachts or other assets for personal use, or when the family is unwilling to deal with the formalities. Where most of the wealth is in a trading business or in property, the position is different and needs specific advice: a trading company's reliefs can be lost if it becomes an investment company, and property brings extra costs.

Risks and costs to weigh

• A second layer of tax when money leaves. Profit is taxed in the company, and dividends are then taxed again in the shareholder's hands, so taking money out can cost as much or more tax than holding the investments personally. The structure suits long-term accumulation, not short-term spending.
• Anti-avoidance rules. Settlements legislation, the rules on gifts where the donor keeps a benefit, the rules on loans to shareholders and the rules on transactions in securities all bear on how a FIC can be funded and used. See our tax guide.
• The seven-year clock. Founders who die within seven years of a gift may leave part of the benefit unrealised, so timing matters.
• Some reliefs are not available. A company that only holds investments does not qualify for business property relief, and reliefs designed for individuals, such as enterprise investment scheme relief, are not available to a company. Investments that qualify for them may be better held personally.
• Property and personal-use assets. A company that holds a home or other residential property can face extra stamp duty land tax, the annual tax on enveloped dwellings and the loss of the main residence exemption, and assets used personally, such as art, yachts or aircraft, can bring benefit-in-kind charges. They usually sit better outside a FIC.
• Moving existing assets can be expensive. Transferring investments or property into a company can trigger capital gains tax and stamp taxes, so most FICs are funded in cash.
• Running costs. The company needs annual accounts, a corporation tax return and Companies House filings, and the family needs advice and reviews.
• Public record. Company filings at Companies House are public, including the Articles and information about shareholders, which matters to families who value privacy.
• Change and HMRC attention. HMRC has examined family investment companies as an inheritance tax planning vehicle. The rules have not been changed specifically for them, but change remains possible, and tax rules and HMRC practice move, so a FIC should be reviewed regularly and advice taken before and after it is set up.

Next steps

If a FIC might suit your family, the useful things to read next are how a FIC is taxed, how to set one up and how to run one. Our family investment company service covers the design, the set-up and the ongoing accounts and tax.