When it comes to planning for the future, families with substantial assets are thinking beyond the traditional trust. More and more high-net-worth individuals across the UK are turning to Family Investment Companies (FICs) as a modern way to manage wealth, reduce tax, and pass assets down to the next generation in a controlled and efficient manner.
So, what exactly is a Family Investment Company? And why are accountants and financial advisers recommending them to clients who want more say over how their money is handled?
What is a Family Investment Company?
A Family Investment Company (FIC) is a private limited company set up with the specific aim of holding and managing family wealth. Rather than distributing assets through a trust or giving them away outright, families create a company, put in cash or investments, and control how the profits are used or passed on.
Think of it as a family-owned holding vehicle. Parents (or older generations) typically act as directors, while children or grandchildren hold shares—often without voting rights—ensuring control stays in experienced hands, while the benefits of growth flow down the line.
Why are FICs Growing in Popularity?
FICs have been gaining traction over the past few years. One reason is that trusts, once the go-to vehicle for intergenerational planning, have come under increasing tax scrutiny. Recent changes to trust taxation and tighter reporting rules have made them less appealing to some families.
Meanwhile, FICs are not subject to many of the same restrictions. They offer flexibility, long-term planning advantages, and—when set up correctly—a number of attractive tax benefits.
Let’s take a closer look.
Tax Benefits of a Family Investment Company
One of the biggest draws of setting up a Family Investment Company is the tax efficiency it can bring. Here are a few key points:
- Corporation Tax Rate
FICs pay corporation tax on profits, which is typically lower than the higher bands of income tax or capital gains tax for individuals. This means profits from investments can grow within the company at a more favourable rate. - Income Retention
Unlike individuals who are taxed on all income they receive, companies can retain profits without paying out dividends. This allows families to grow wealth within the FIC and only trigger tax when they decide to take money out. - Dividend Planning
FICs offer a lot of flexibility around how and when dividends are paid to shareholders. Parents can hold voting shares and decide on the timing and amount of dividend distributions to children or other family members. This gives them control while also allowing tax planning around who receives income and when. - Inheritance Tax Planning
Here’s where FICs can really shine. By gifting non-voting shares to children early, parents can remove future growth in value from their estates for inheritance tax purposes, while still retaining decision-making power. Over time, this can reduce the taxable value of the estate without handing over immediate access to wealth.
How to Set Up a Family Investment Company
Setting up an FIC is relatively straightforward, but it does require good planning and legal advice. Here are the basic steps:
Step 1: Incorporate a Company
Create a private limited company through Companies House. This can be done online or through an accountant or solicitor. The company will need a tailored set of articles of association to reflect the family’s structure and goals.
Step 2: Decide on the Share Structure
This is where the planning gets personal. Typically, there are two classes of shares:
- Voting shares, usually held by parents or senior family members
- Non-voting shares, often given to children or placed in a family trust
The exact structure depends on the family’s circumstances, but the aim is to separate control from economic benefit.
Step 3: Inject Capital
The next step is to fund the FIC. This can be done through loans or share subscriptions. Loans are common because they can be repaid tax-free. Assets like cash, investment portfolios, or property can be transferred into the company.
Step 4: Run the Company Properly
An FIC is a real company, so it needs to be run like one. That means keeping proper records, filing accounts, and holding board meetings. Many families appoint an accountant to manage the administrative side.
