Family Investment Companies vs Trusts: which is better?

Choosing between a trust and a Family Investment Company (FIC) is really a question of how far into the future you want today's decisions to reach.

A trust is a financial time capsule. You decide now who it's for, what it can be used for, and under what conditions it opens.

Once it's sealed, control passes to trustees and rules rather than to you. The whole point is that the structure keeps working even when you're no longer around to supervise it.

A FIC, by contrast, is a living structure rather than a sealed one.

The money sits inside a company you control, governed by share classes, voting rights, and directors rather than by a trust deed. You stay involved, decide when value moves, who benefits, and how tightly the reins are held.

Both structures are widely used by UK families with big and complex portfolios. Both feature in inheritance tax planning, but neither reduces inheritance tax automatically.

Each comes with real costs, real administration, and limited room for error. And despite how they're often described, they're not rival solutions to the same problem.

This guide explains:

• How trusts and FICs work under UK tax and legal rules
• What each is good at
• What you give up when you choose one over the other.

The aim is not to push you towards a structure, but to make the trade-offs clear before you lock in decisions that are deliberately hard to reverse.

What is a Family Investment Company (FIC)? 

A FIC is a private limited company used to hold and manage a family's investments.

Instead of owning assets personally, family members own shares in a company. The company will not be producing anything tangible like bread or candlesticks; instead, it exists solely to hold property, shares, cash or other investments and make decisions about them.

Legally, it's just an ordinary UK company, used deliberately for family wealth planning.

How control is handled

The main attraction of a FIC is that control and financial benefit do not have to sit with the same people.

Typically:

• The founding generation holds voting shares and stays in charge of decisions
• Children or grandchildren hold non-voting shares that carry rights to income or long-term growth.

Think of it like taking your children out for a ride in the car: they come along for the journey and will enjoy the destination, but their hands stay firmly off the steering wheel. 

How the structure is designed

A FIC is not bought off the shelf. It is designed from the start with a solicitor and accountant.

The Articles of Association, which sound as though they ought to be written with ink and a feather, set out things like:

• Who has voting rights
• Who can receive dividends
• When shares can be transferred
• What happens on death or divorce.
  

A common arrangement is for founders to keep voting shares while gradually gifting non-voting shares to younger family members, so growth accrues to the next generation while strategic control stays put. 

Most FICs are set up as standard limited companies.

Liability stops at the company, but accounts and ownership details are filed publicly. Some families opt for an unlimited company, sacrificing limited liability so their accounts stay off the public register. That is usually only worth doing if someone, somewhere, might genuinely enjoy snooping.

In practice, FICs are used by high-net-worth families to pool assets and plan succession in a structured way – ideally without the boardroom theatrics of the HBO series Succession.

They commonly hold property portfolios, investment funds, private equity stakes and large cash balances, particularly once assets run well into the millions.

To sum up: a FIC is a bespoke company for parking family wealth. The older generation keeps hold of the steering wheel, the younger generation gets the economic upside, and the tax system treats the profits like company income rather than personal earnings.

What is a trust?

A trust is a legal arrangement rather than a company.

One party – the trustees – holds assets on behalf of others – the beneficiaries.

The person who sets it up, known as the settlor, transfers assets into the trust. From that point on, legal control sits with the trustees, who must act in accordance with the trust deed and their duties under trust law.

It is the legal equivalent of burying a time capsule: you decide in advance who it's for, what sits inside it, and under what conditions it can be opened. 

Once it's sealed, the rules take over – you don't get to pop back later to rearrange the contents at will. Instead, the rules set out in advance take over.

Instead of a spade and a hiding place, you use a solicitor and a trust deed, but the idea is the same: decisions made now are meant to bind the future.

The main types you see

• A bare (or absolute) trust is the simplest form. The beneficiary has an immediate right to both income and capital. In practical terms, the money is already theirs – it's just being held in someone else's name until they reach a certain age, usually 18. For tax purposes, the beneficiary is treated as owning the assets directly
• An interest-in-possession trust sits somewhere in the middle. One beneficiary has a guaranteed right to the income as it arises, but not to the underlying capital. This structure is most often seen in wills – for example, where a surviving spouse receives income for life and the capital passes to children later. These trusts became less common after tax changes in 2006, but they still appear in estate planning
• A discretionary trust gives trustees wide latitude. They decide when income or capital is paid out, to whom, and in what amounts, within the class of beneficiaries set out in the trust deed. This is the most flexible option – and the most restrictive from a tax point of view. It's often used for future generations, minors, or beneficiaries who may not be ready or suitable to receive money outright.

Other trust types exist, and we've covered them in detail in our article: Every type of trust explained and simplified. However, in practice, UK personal wealth planning mostly comes back to the three we outlined above.

Taxes: How FICs and Trusts are treated

Tax is usually the reason people start looking at FICs in the first place. This is the high-level picture only. Word to the wise: this is an area where professional advice is essential.

How FICs are taxed

• A UK-resident FIC pays corporation tax on its profits and chargeable gains. Since April 2023, the main rate has been 25%
• Most FICs do not qualify for the lower corporation tax rates available to small trading businesses. That's because they exist to hold investments rather than run an active trade
• Dividends received from most UK and overseas companies are usually not taxed again inside the FIC. This allows income from shares and funds to build up within the company without an annual tax hit
• When the FIC sells investments at a profit, the gain is taxed at the same corporation tax rate. In some situations, important reliefs apply. For example, if the company sells a significant stake in a trading business it owns, the gain can sometimes be free of tax.

The catch: taking money out

The main downside of a FIC shows up when money leaves the company.

Dividends to family members

• When the FIC pays dividends to shareholders, those dividends are taxed personally
• Higher-rate taxpayers pay 33.75% dividend tax and additional-rate taxpayers pay 39.35%
• Adult children with lower incomes may pay much less
• Even so, this usually means profits are taxed twice: once in the company, and again when paid out.

Salary or bonuses

• Paying family members as directors or employees triggers income tax and National Insurance
• Combined rates can be very high, which often makes this an inefficient way to extract money.

Loans to shareholders

• A FIC can lend money to shareholders, but the rules are strict
• If a loan is not repaid within nine months of the company's year end, the company faces a tax charge of 33.75% on the amount outstanding
• That charge can be reclaimed later if the loan is repaid, but without interest
• If a loan is written off, the person receiving the money is taxed on it as income.

In plain terms, even Howard from Halifax could not sell a FIC as a good personal bank account. They reward long-term planning and patience, and they punish casual borrowing hard.

How trusts are taxed

Trusts are generally taxed more heavily than individuals or companies. They get smaller allowances, higher headline rates, and fewer easy escapes. The exact rules depend on the type of trust, but the outline below covers the most common UK setups.

Tax on income

For most discretionary and accumulation trusts, income tax works like this:

• If total trust income for the year is £500 or less, there's generally no income tax to pay on that income
• If total trust income is more than £500, income tax is due on the full amount (not just the excess) at the trust rate
• Rental income and bank interest are taxed at 45%
• Dividends are taxed at 39.35%.

In practice, this means trust income is usually taxed heavily unless the sums involved are genuinely modest.

Interest-in-possession trusts

Interest-in-possession trusts give a named beneficiary an automatic right to the income as it arises.

In those cases, the trustees pay tax at the basic rates and the income is then treated as belonging to the beneficiary.

The beneficiary is taxed as if they had received the income directly. From a tax perspective, this comes much closer to handing the income straight to that person, rather than trapping it inside a trust.

Capital gains tax

• Trustees pay capital gains tax at a flat rate of 24% on most disposals, including residential property. This is a single trust rate rather than a banded system, and it can be higher, lower, or the same as an individual's rate, depending on the person and the asset
• The annual tax-free allowance is much smaller than for an individual. Most trusts get £1,500 a year, compared with £3,000 for a person, which means gains become taxable much sooner
• There is no longer a separate higher CGT rate for residential property inside trusts. Property gains are taxed at the same 24% trust rate as other assets.

There are reliefs that can defer or pass on gains when assets leave a trust, such as hold-over relief.

Even so, trusts offer little shelter for active trading. Allowances are limited, gains are taxed at a single headline rate, and capital growth is brought into charge quickly once values start to rise.

Inheritance tax: where trusts really differ

Inheritance tax is where trusts diverge most sharply from FICs.

• Putting assets into a new discretionary trust can trigger an immediate inheritance tax charge once transfers go above the nil-rate band
• If the person who set up the trust dies within seven years, additional inheritance tax may be due
• Discretionary trusts also face an inheritance tax charge every 10 years, plus smaller charges when capital leaves the trust.

This ongoing tax friction is the price paid for long-term control and flexibility. By contrast, an outright gift of FIC shares to an individual is usually a potentially exempt transfer, with no upfront inheritance tax charge if the seven-year rule is met.

Using trusts and FICs together

Some families use both structures as part of the same planning setup.

One way to combine them is for trustees to hold shares in a FIC. Company profits and chargeable gains are generally subject to corporation tax, while the trust controls who ultimately benefits and when.

These layered arrangements can work well, but they are more complex: hoops to jump through include trust registration and company beneficial ownership disclosures.

Interest-free loans, undervalued share transfers, or arrangements where the original owner still benefits can all cause problems if not handled with extreme care and the input of a professional. 

Trusts vs FICs: a head-to-head

You now know what a trust is and what a FIC looks like in practice. The harder question is when families actually use one rather than the other.

They often sit on the same shortlist because they aim at similar outcomes: keeping wealth in the family, managing inheritance tax, protecting assets, and bringing some order to what would otherwise be a loose collection of investments.

But they get there in different ways, and depending on your use case, there are reasons you might prefer one over the other.

Inheritance tax planning

Historically, trusts were the default tool for inheritance tax planning.

That changed after the 2006 reforms, which introduced an immediate 20% inheritance tax charge on most lifetime gifts into discretionary trusts once you exceed the nil-rate band.

FICs rose in popularity partly because they avoid that upfront hit. Shares in a FIC can be gifted as a potentially exempt transfer when they are given outright to an individual.

If the person making the gift survives seven years, there's no inheritance tax on the value transferred.

Trusts still have a role here, but the tax entry cost now forces much more deliberate planning. FICs tend to suit families who want to move value out of their estate without triggering tax on day one.

Winner for minimising upfront tax pain: the FIC.

Control

This is often the decisive factor.

With a FIC, control is built into the structure. Founders commonly retain voting shares, board seats, or both. Economic value can be shifted to other family members while decision-making stays put.

A trust works differently. Once assets are in trust, legal control sits with the trustees. You can guide them through the trust deed and a letter of wishes, but decision-making must sit with the trustees acting within their legal duties, even if the settlor appoints themselves as a trustee.

For families who want the structure to outlive their own involvement, that is the point. For those who want to stay hands-on, it can feel like a step too far.

Winner if you want to stay in charge: the FIC.

Winner if you want the structure to outlive you: the trust.

Who gets money, and when

Trusts are highly flexible when it comes to distributions.

A discretionary trust can delay payments, target specific beneficiaries, respond to changing needs, or hold on to income if nobody needs it yet.

A FIC is more rigid. Only shareholders benefit, and only according to the rights attached to their shares. That said, families often combine the two. FIC shares can later be held inside trusts, adding flexibility without giving up the company structure.

Winner for fine-grained flexibility: the trust.

Asset protection

Both structures can offer protection, but in different ways.

Assets held in trust are owned by the trustees, not by the original individual. That can help where there is business risk, creditor exposure, or the possibility of divorce settlements.

A FIC doesn't remove ownership in the same way, but separating control from economic value can still hedge against major lapses of judgement. In more complex setups, trusts are sometimes layered on top, holding shares in the company.

Winner for clean legal separation: the trust.

Succession and the next generation

Both tools impose discipline.

A FIC introduces company governance. Boards, directors, shareholder meetings. It can be a way to involve children early, give them responsibility, and gently introduce them to the dark arts of board meetings, voting rights, and monocle-wearing at a tender age.

Trusts rely on trustees instead. That may suit families who prefer professional oversight, or where beneficiaries are not ready or willing to take on active roles.

Winner if you want to train the next generation hands-on: the FIC.

Winner if you want professional oversight: the trust.

Pooling and managing investments

FICs are often used to bring disparate assets under one roof. Property portfolios, shareholdings, cash. Everything managed through a single vehicle.

Trusts can do this too, but they are more commonly used for specific gifts or defined pools of wealth rather than as an all-purpose investment hub.

Winner when the goal is a single, central investment hub: the FIC.

Decision guide: choosing between a FIC and a trust

• If control and tax-efficient growth matter most

A FIC often comes out ahead.

It allows founders to retain voting control while profits grow inside a company taxed at corporation tax rates, rather than personal top rates.

It also avoids the upfront inheritance tax charge that now applies to many trust gifts, provided the seven-year rule is met. For larger portfolios, this combination is often decisive.

• If flexibility across people and generations is the priority

A trust is usually the better fit. Trusts can provide for multiple beneficiaries, including future generations not yet born, and allow trustees to adjust distributions year-by-year.

This makes them useful where beneficiaries are young, circumstances are uncertain, or needs may change over time. The trade-off is higher tax friction and less founder control.

• If you want both control and flexibility

A half-way house solution is to use the two together.

A common approach is to run investments through a FIC, then place some or all of the shares into a trust for children or grandchildren. That way, growth happens inside the company, while the trust controls who ultimately benefits and when.

Use case/priority	Family Investment Company (FIC)	Trust
Minimising upfront inheritance tax	✅ Avoids the 20% entry charge on lifetime gifts	❌ 20% entry charge once gifts exceed the nil-rate band
Retaining founder control	✅ Control can be hard-wired via voting shares and board roles	❌ Legal control sits with trustees, not the settlor
Flexible distributions	❌ Only shareholders benefit, according to share rights	✅ Highly flexible, especially with discretionary trusts
Asset protection/legal separation	⚠️ Some protection via separation of control and value	✅ Clean separation: assets owned by trustees
Protecting against divorce/creditors	⚠️ Can help, but not absolute	✅ Stronger protection in many cases
Professional oversight	❌ Relies more on family governance	✅ Trustees (often professionals) provide oversight
Pooling and managing investments centrally	✅ Excellent as a single investment hub	⚠️ Possible, but less commonly used this way
Tax-efficient long-term growth	✅ Corporation tax environment can be attractive	❌ Ongoing trust tax charges can be higher
Multi-generational flexibility	❌ Limited without additional structures	✅ One of the trust’s biggest strengths

Questions to ask an adviser

Before committing to either structure, it's worth speaking with a professional. In this case, you'd usually speak to a private client solicitor or a chartered tax adviser.

To help prepare you, we've put together the following list of questions to get the conversational juices flowing:

• Based on our assets and goals, why might a trust suit us better than a FIC, or vice versa?
• How would this structure interact with my existing wills and wider estate plan?
• What are the full start-up costs, including legal, tax, and registration fees, and what ongoing fees should we expect?
• Who should we appoint as trustees or directors, and what happens if someone becomes unable to act?
• If we use a FIC, how should voting and non-voting shares be split, and how should those shares be valued?
• If we use a trust, what specific powers will trustees have, and who can be named as beneficiaries, both now and in the future?
• What records, filings, and compliance work will be required each year, and who will be responsible for them?
• How do inheritance tax allowances, such as the nil-rate band and residence nil-rate band, fit into this plan?
• Have there been any recent HMRC investigations or rule changes that affect these structures?
• What exit or succession plans should be built in from the start, for example on death, gifts, or divorce?

Bottom line

A trust is a time capsule. You lock in today's decisions and accept that the future will be governed by rules rather than by you.

A FIC is a living structure. It lets you stay involved, steer outcomes, and adapt as circumstances change. Neither is better in the abstract.

The right choice depends on whether you want your planning to keep running without you, or with you firmly in the driving seat.

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