Family investment companies explained and simplified

A family investment company (FIC) is a private limited company that holds family money and invests it. The parents usually run it as directors, the children hold shares, and everyone pretends to read the accounts.

It offers a way to grow and pass on wealth through a company structure rather than a trust. The business can hold property or financial investments, and profits stay inside until someone decides otherwise.

The guide explains how the structure works, and why it sometimes causes more tension than a badly written will.

What is a family investment company?

A FIC is an ordinary limited company arranged to manage family wealth. It exists to hold assets under a single structure and to keep control within familiar hands.

Parents often create the company and act as directors. Shares are divided among relatives according to the family's plans for ownership and inheritance.

Different share types allow the founders to keep decision-making power while others receive income or capital rights. It keeps order without requiring trust in anyone's judgement.

When children are under 18, shares can be placed in a trust until they are old enough to hold them outright. Otherwise the next shareholder meeting takes place in a ball pit.

Why have one?

Families set up FICs because they combine company-level treatment with control over how and when wealth moves down the generations.

Tax efficiency

Companies pay corporation tax on profits – currently 25% – which is often lower than personal rates that can reach 45 percent on income or 33.75 percent on dividends.

Most dividends received by a company are exempt, so the money can be reinvested without another tax charge. When profits are eventually paid out to family shareholders, they're taxed as dividends, but only at that point. It means growth compounds inside the company while HMRC waits patiently at the finish line.

Control and succession

Parents usually hold voting shares and act as directors, while children hold non-voting shares that give them access to income or capital.

This structure lets the older generations decide when distributions are made and how the assets are managed. It avoids the problem of handing over large sums to people whose main qualification is surviving puberty.

Inheritance-tax planning

Shares can be gifted to the next generation while the company's value is relatively low.

If the parents survive for seven years and the gift is treated as a valid potentially exempt transfer (a gift made outright that escapes inheritance tax if the donor lives seven years), then the value of those shares falls outside their estate for inheritance-tax purposes.

Growth in the value of those shares after the gift likewise sits outside the parents' estate.

Asset protection

Assets held by the company are legally separate from the family members who own shares in it.

That offers a degree of protection if someone divorces, goes bankrupt, or starts building a Polymarket portfolio based entirely on UFO disclosures.

Education and involvement

FICs let younger family members see how money is invested without being given direct access to it.

They can attend board meetings, review accounts, and learn what "liquidity" means before life teaches them the same lesson only with overdraft charges and despair.

Who uses FICs?

FICs have gained traction partly because tax reforms made traditional family trusts less appealing. Over the past decade, legislation has increased the costs and complexity of trusts.

According to HMRC, in a sample of FICs the average level of assets was around £5 million. The structures were predominantly used by individuals earning over £200,000 per annum or with wealth of more than £2 million.

FICs are just one strategy for passing on your hard-earned wealth smoothly. Read about all the others in our guide: Wealth protection strategies for high-net-worth people.

How does a family investment company work?

Once the decision's made, setting one up is mostly paperwork and patience. A FIC is built like any other limited company, then tailored through its share structure to fit the family's plans.

1. Incorporating the company

The company is registered with Companies House, usually online.

The digital fee is around £50. You'll need a name, an address and at least one director and shareholder. Directors are often the older generation who want to keep control, though there's no rule that they must be related – a trusted outsider can sit on the board if needed.

This is also when the share structure is designed.

Most families create more than one class of share to separate control from benefit. The older generation keeps the voting shares; the younger ones hold non-voting shares linked to dividends or future growth.

Shares can even be written to activate at a certain age or event. It's the moment when the family hierarchy is codified in legal form.

Once registered, the company exists as its own legal entity and must file accounts, pay corporation tax and keep minutes of decisions.

2. Funding the FIC

Once the company exists, it is an empty box. It needs money or assets before it can invest. There are two main ways to fund it:

• By buying shares in the company
• By lending money to the company.

You can use just one of the two or mix them.

Buying shares in the FIC (equity)

This is the simpler route.

• The company issues new shares
• The parents (or whoever is funding it) pay money into the company bank account
• In return, they receive those shares.

The cash now belongs to the company and can be invested. The shares belong to the family members who paid in.

Shares can also be given to the next generation, either directly or through a trust if they're under 18.

Gifting shares early, when the company's value is still low, fixes the parents' estate at that smaller amount.

As the company grows, the increase in value builds up on the children's shares instead – outside the parents' estate for the purposes of future inheritance tax.

You can inject assets instead of cash. For example, you could transfer an investment portfolio or a buy-to-let property into the company.

In tax terms, that counts as if you had sold those assets. If they have gone up in value, that can trigger capital-gains tax. So the "I'll just shove my flat into the FIC" idea usually comes with an unpleasant chat with an accountant.

Lending money to the FIC (debt)

The other common method is a family loan.

A parent lends money to the company. The company owes that money back to them. The company then invests the loan money in property or a portfolio.

Why do this?

• When the company repays the loan, the repayment is not treated as income. It is just returning capital. So there is no income tax on the parent at that point
• The loan sits as an asset in the parent's estate for inheritance tax. The shares can sit with the children. Any future growth belongs to those shares, not to the loan. The value of the loan tends to stay flat, while the value of the company can rise in the children's hands.

Parents often set the interest rate at zero for simplicity, though you can charge interest if there is a reason to do so.

If the company pays interest, that interest is usually tax-deductible for the company and taxable income for the parent. This is the Tony Hawk's 900 of tax manoeuvres: impressive, but you don't need to get into it if you don't want to; you can just skate on straight.

A common, simple pattern looks like this:

• Parents lend a large sum to the FIC
• Children hold most of the shares
• The company invests
• Over time, the parents draw money back by loan repayments when they need cash
• The growth in value belongs largely to the children's shares.

That keeps access to capital for the parents while pushing long-term growth towards the next generation.

What can go in, and what should stay out

The easiest way to fund a FIC is with cash – a simple bank transfer does the job.

You can also move investments, such as shares, funds, or a rental property, into the company. But if those assets have risen in value since you bought them, transferring them counts as a disposal and can trigger capital-gains tax. To avoid an instant tax bill, most people just put in fresh cash.

Some people instead sell an existing asset, like a flat or a share portfolio, to the company and take an IOU (a loan) in return.

That deal still counts as selling it for real in the eyes of the taxman, so you may have to pay capital gains tax if it's gone up in value – and for property, you'll also have to pay stamp duty, just as if you'd sold it to someone else.

Personal-use assets belong nowhere near a FIC. Putting your home, holiday property, or boat into one leads to tax complications, including benefit-in-kind charges, the Annual Tax on Enveloped Dwellings, and the loss of main-residence relief.

3. Investing through the company

Once the company has money, it can start behaving like a miniature investment fund with a shared surname.

The directors (usually the parents) decide where to put it. The FIC can buy shares, funds, property, or even invest in a family-run business if everyone promises to stay civil at Christmas. There are almost no limits on what a FIC can hold, as long as it's a genuine investment rather than something you're using yourself.

Everything sits in the company's name: the brokerage account, the deeds, the portfolio.

On paper, Mum and Dad aren't buying a rental flat – Smith Family Investments Ltd is. It looks very proper on a balance sheet, even if the "board meeting" takes place at the kitchen table between the lasagne and the clothes horse.

4. Ongoing management and compliance

On the spectrum of maintenance from cactus to puppy, a FIC is closer to the latter. After all it's a company, and companies have chores.

Accounting and filings

Each year, the company must prepare accounts, file them with Companies House, and submit a confirmation statement.

Even small companies have to do this, though they can file shortened accounts. These filings are public, so nosy neighbours (or journalists) can see broad figures. Some people choose to reigster as an unlimited company to avoid public accounts, but that's rare.

Miss the deadlines often enough and Companies House starts charging late fees, then moves on to deletion – an unglamarous finale for any dynasty.

Corporation tax returns

The company files a tax return with HMRC every year and pays corporation tax on its profits (see below for full details on taxation). Most families use an accountant. This is a recurring cost to factor into your calculations.

Dividends and records

If money moves between the company and its shareholders, the paperwork must match.

Dividends need vouchers and board minutes. If the company lends money to a family member, there are rules on "loans to participators": if the loan isn't repaid quickly enough, HMRC adds a temporary tax charge. It's the fiscal equivalent of being told off and asked to tidy your room.

Governance

Many families write a shareholders' agreement to prevent arguments down the line. It sets out who decides when dividends are paid, what happens if someone wants to sell their shares, and how the company handles new generations. It's less about tax and more about family peacekeeping.

5. Extracting money: how family members benefit

Sooner or later, someone will want to use the money, whether for retirement, a house deposit or an emergency boiler replacement that apparently can't wait until Monday.

There are several ways to take money out of a FIC, and each has different tax consequences.

Dividends

The company can pay dividends to shareholders in proportion to their shares.

Parents who still hold shares might declare a dividend to themselves as income, while different share classes can allow dividends to flow to specific family members when needed.

Dividend income is taxed personally, at rates of 8.75%, 33.75% or 39.35%, depending on the recipient's tax band. The first £500 of dividends (as of 2025/26) is tax-free.

Takeaway: dividends come from profits after the company has already paid corporation tax. So if the company pays 25% corporation tax and then you pay up to 39% on the dividend, that money have been taxed twice on its long journey out.

This is one of the trade-offs of using a FIC. Families often reduce the hit by leaving profits inside the company to reinvest, or by paying dividends to family members who genuinely hold shares and pay tax at lower rates – provided the income is theirs to keep, not just passed through them (HMRC calls that income shifting, and they don't allow it).

Loan repayments

If the parents originally funded the company with a director's loan, the FIC can repay that loan at any time.

Repayments aren't income – they're just returning the capital that was lent. This makes them one of the most tax-efficient ways to draw money out. In many families, parents live off loan repayments for years before ever touching dividends.

Interest or salary

If someone lent money to the company, it can pay interest on that loan.

If someone genuinely works for the company – for instance, managing the investments – it can also pay a salary. Both are legitimate, but they have trade-offs: the company can deduct the cost from its taxable profits, yet the individual must declare the income and pay tax on it.

Few families bother with salaries (no one enjoys PAYE paperwork), but modest interest payments are sometimes used to provide a steady income stream.

Capital distributions

If the company is ever wound up or the shares are sold, family members can receive the proceeds as a capital gain rather than income.

Capital gains tax is often lower – 10–20% for most assets, or 24% for residential property. Some families plan an eventual "exit" decades ahead, aiming to distribute wealth this way. It's complex and best done with professional advice.

FICs at a glance

Purpose: A company structure for holding and growing family wealth
Who uses them: Wealthier families wanting control and smoother inheritance
Setup: Parents act as directors; children hold shares
Tax: Profits taxed at 25% corporation tax until paid out
Control: Voting shares stay with parents; non-voting shares can pass to children
Inheritance planning: Gifting shares early can move future growth outside the estate after seven years
Downsides: Ongoing admin, accounting costs, and potential double taxation when profits are distributed.

Tax: where the dream meets the HMRC portal

FICs can sound suspiciously tidy: keep control, save tax, involve the children – like one of those family holiday packages where the grown-ups sip cocktails while the children do finger-painting next door.

But before you get too comfortable, it's worth seeing how the taxes actually work. This is the point where the fantasy of "family wealth management" meets the hard kerb of forms, rates and acronyms.

Corporation tax

A FIC is a UK company, so it pays corporation tax on its profits each year.

The current main rate is 25%. Small trading companies can qualify for a lower rate, but FICs are classed as "close investment-holding companies", which is HMRC's polite way of saying "you're an investment club, not a business", so they don't get the discount.

Profits inside the FIC – from rent, interest or capital gains – are taxed at that 25% rate. The company itself handles the filing and payment, usually with the help of an accountant.

Dividends inside the company

Here's where things get interesting: most dividends that a UK company receives are tax-free.

If your FIC invests in big listed firms or equity funds, the dividends from those holdings usually arrive with no corporation tax deducted.

That means the FIC can reinvest the full amount, compounding faster than if you held the same shares personally and lost a chunk to dividend tax each year. It's one of the advantages of having your investments inside a corporate wrapper.

The double-tax effect

The catch is when the money finally comes out. Once the FIC pays dividends to its shareholders – your family – those payments are taxed personally.

By then, the company has already paid its 25% corporation tax, so this is round two. Add it all up and a £100 profit inside the FIC might shrink to about £50 by the time it reaches someone's bank account at a high income tax rate.

That's why many families keep most of the profits inside the company, using them to reinvest or repay loans, and only draw what they need. In effect, the FIC acts as a holding tank where money can grow at company tax rates until you actually need it.

Inheritance-tax reality check

FICs don't magically erase inheritance tax.

The shares themselves are part of your estate and don't qualify for Business Property Relief – a tax break reserved for trading businesses that actually make or sell things, not investment companies that just hold assets.

The real inheritance-tax play is how the shares are given away. Parents often gift the shares when the company is brand new and worth very little, then lend the money in separately as a director's loan.

That loan stays in the parents' estate for inheritance-tax purposes, but its value doesn't increase. The shares, meanwhile, belong to the children, and if the investments inside the FIC grow, that growth belongs to them.

Over time, the parents' taxable estate stays fixed at the value of the loan – say £1 million – even if the company's assets rise to £3 million. The extra £2 million sits outside their estate (as long as the parents survive seven years after gifting the shares). The loan itself, however, remains part of their estate throughout.

You can think of it like cryogenically freezing your tax bill – HMRC will unthaw it when you're gone, and the kids will stroll off with the growth untouched.

Other tax odds and ends

When you move assets into the company, HMRC doesn't see it as a magical "transfer". They see it as a sale.

So if the assets have gone up in value since you bought them – say your rental flat or your share portfolio – you could face a capital-gains tax bill just for moving them across. Accountants call it a "disposal". You might call it annoying.

What about if you purchase property through the FIC? In that case, you'll still need to pay Stamp Duty Land Tax, plus the 5% surcharge that applies to second homes.

And if that property is residential and worth over £500,000, the company may owe the Annual Tax on Enveloped Dwellings – a special levy on expensive homes held through companies.

Also keep in mind that companies don't get the personal tax-free allowance that individuals do. There's no £12,570 income allowance, no £3,000 capital-gains exemption.

Every pound of profit is taxable. The consolation prize is simplicity: instead of climbing through tax bands, the company pays a flat corporation-tax rate (currently 25%).

Bottom line

A FIC is a container for family wealth that behaves like a business. It brings discipline to money that would otherwise sit in scattered accounts. The growth builds up inside a corporate shell and decision-making is kept at the family table.

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