Family Investment Companies
For families and their advisers seeking effective strategies for intergenerational wealth planning, family investment companies (FICs) offer a tax-efficient solution that supports governance, succession, and long-term control.
Family investment companies, or family wealth companies, are companies which are established purely to manage the private wealth of a particular family. Family members typically hold the shares, and directors are usually drawn from the family as well, although outside advisers may also be appointed.
FICs are structured as private limited companies, making them a familiar corporate vehicle for families seeking to manage significant wealth. The key advantage is the clear separation of ownership, held through shares, and control, exercised by directors or via voting rights. This enables parents to transfer economic value to younger generations while retaining decision-making authority during their lifetime.
Why families and advisers use family investment companies
FICs have become a preferred wealth planning tool because they:
- Provide a familiar vehicle for holding wealth and for ensuring its governance in line with agreed principles
- Allow for different share classes to allow different family members to have different rights to income or capital, and voting rights
- Restrict the transfer of shares outside the family
- Offer a higher degree of control to adult family members
- Provide some protection in divorce cases
Beyond these structural benefits, FICs offer significant tax planning advantages. Profits within the company are taxed at corporation tax rates rather than personal income tax rates, and UK dividends received by the FIC are generally exempt from corporation tax. For inheritance tax planning, shares can be gifted to younger family members, and if the donor survives seven years, the transferred value falls outside their estate.
When a family investment company makes sense
FICs are generally recommended for initial investments of more than £3 million. They are more suitable for holding large capital sums over the mid to long term and for long-term investments, with a focus mainly on investment and growth rather than the payment of dividends.
A FIC may not be appropriate if income from assets held by the FIC is required personally by the owners or founder, or if the owner or founder is planning on regularly distributing the income of the FIC to their family members. Regular distribution creates negative tax implications, resulting in both corporation tax as well as income tax liabilities.
Many individuals are familiar with a limited liability company, which is what a family investment company is. Traditionally, trusts have been a common choice, but they can be legally complex and may not always offer optimal tax efficiency. A trust is a legal arrangement that allows for the management of various assets on behalf of beneficiaries, involving three key roles: the settlor, the trustee, and the beneficiary. A FIC is a privately owned limited company designed to effectively manage and protect wealth and facilitate the transfer of wealth to future generations through share ownership.
The use of a discretionary trust may be preferable to hold smaller funds, assets that may be used by beneficiaries, or for holding assets for beneficiaries not yet born or identified.
How a family investment company is set up and structured
The procedure for incorporating a FIC is the same as for any new company. If using a limited company, amended or entirely bespoke articles will be required. If using an unlimited company, long-form articles will be needed. For limited companies it is possible to use an online registration service, but for unlimited companies paper forms are needed.
Major consideration should be given as to whether the FIC is set up as a limited company or an unlimited company. Unlimited companies are not required to file accounts at Companies House, which helps to retain privacy. However, unlimited companies do not have any benefit of limited liability for the shareholders. If the FIC invests in investment property that is rented, a limited company offers protection an unlimited company doesn’t, in that the risk of any claim by the tenants of the property is ring-fenced to the net assets of the company. For an unlimited company any claim is uncapped.
Initial funding for a FIC can come from three sources: the initial share subscription, share issues, or loans. Loans are often considered an attractive way to fund a FIC as a loan makes extracting funds easy through loan repayments. Shareholders can charge commercial rates of interest on their loans – the interest is corporation tax deductible and provides a return to shareholders without any NIC costs. It is also possible to combine equity and debt to finance a FIC.
FICs can employ various types of shares, each carrying different voting and economic rights concerning the distribution of profits or assets. The type and nature of share distribution determine the level of control that individuals can exercise over the FIC and the way income and assets are distributed. The articles of association and shareholders’ agreements drawn up for the FIC will be key documents in establishing the framework by which the FIC operates.
What families should weigh-up before establishing a FIC
A FIC can be an effective structure for wealth planning, offering lower corporation tax rates, potential inheritance tax advantages and tax-free UK dividends. Profits can accumulate within the company. Depending on the types of income, these could accumulate without immediate taxation, and the corporate framework provides a degree of protection in divorce and from creditor claims. Families also gain a clear governance structure, the ability to involve multiple generations and a way to preserve long-term control and family values.
There are trade-offs. Distributing all profits can create double taxation, so FICs work best when profits can be retained. Moving assets other than cash into the company may trigger tax charges, and ongoing administration adds cost and complexity. They are rarely suitable for families who need regular personal income from the assets. Disclosure requirements can also affect privacy, and the structure may introduce family tensions if governance is not clearly agreed.
Investments that rely on personal tax reliefs, such as Business Asset Disposal Relief, Business Property Relief or the Enterprise Investment Scheme, are usually better made personally, as a FIC cannot access those individual reliefs.
HMRC has examined the use of FICs for inheritance tax planning and found no link with non-compliant behaviour. No legislative changes have followed, but future adjustments remain possible. Families should take specialist advice before establishing a FIC or altering an existing structure.
For a fuller view of the advantages and drawbacks, see our Insights article on the pros and cons of family investment companies.
How ZEDRA supports family investment companies
Our team supports families throughout the establishment and ongoing management of a family investment company. Services include:
- Legal and tax advice
- Incorporation
- Corporate Secretarial Services
- Maintain formal company records and file statutory returns
- Accounting and tax return compliance
- Consolidate reporting of assets in customised formats to meet the requirements of a family member
Our UK specialists have extensive experience advising on FIC structures. To learn more, please contact one of our dedicated experts.
Disclaimer: Nothing herein shall constitute legal, tax or investment advice of any kind and ZEDRA accepts no liability for any reliance placed on the contents herein which are solely included for the purposes of marketing ZEDRA’s service offerings. Advice should be sought from appropriately qualified advisers to assess the suitability of any solution to your specific circumstances.
Our Family Investment Companies Team
Stuart McLuckie
Sue Wakefield
Adam Wildbore
Mark Pashley
Laura Tommis
Roger Peacock
Frequently Asked Questions
A family investment company is a private company established to hold and manage family wealth. Shares are owned by family members, while directors – usually senior family members – retain control. It allows families to separate ownership from decision-making and manage wealth through a familiar corporate structure.
Families use FICs to retain control, separate capital and income rights through different share classes, restrict transfers outside the family, and support long-term succession planning. They also provide tax advantages, including corporation tax treatment and potential inheritance tax efficiency.
Both are used for succession planning, but FICs offer greater control and clearer corporate governance. Trusts can provide more flexibility for distributing benefits. FICs suit families wanting corporate structure and control while trusts may suit families needing broader discretion.
FICs are typically funded through a mix of share subscriptions, loans from parents, or gifts of value to younger family members. The method chosen affects control, access to capital, and long-term estate planning.
Key advantages include strong governance, control through share classes, potential protection in divorce, corporation tax treatment on profits, and the ability to transfer value to the next generation while maintaining decision-making authority.
FICs involve setup and ongoing compliance costs, are not suitable for families relying on regular income withdrawals, and may create double taxation if profits are distributed. They also require careful governance and ongoing administrative support.
Directors are usually senior family members, sometimes supported by professional advisers. Younger family members may hold economic value through shares without having voting rights, allowing control to remain with older generations during their lifetime.
ZEDRA provides formation, corporate secretarial services, accounting, tax compliance, governance support and consolidated reporting. Legal and tax advice is delivered through ZEDRA’s SRA-regulated law firm to ensure compliant structuring and administration.
