Why are Family Investment Companies (FICs) a popular investment vessel?
Family Investment Companies (‘FICs’) are used as a means of facilitating the tax efficient transfer of wealth between generations. The creation of a FIC is beneficial such that it achieves often immediate tax efficiency for income producing assets, future Inheritance Tax savings, helps protect and maintain control over family wealth, while transferring that wealth to the next generation.
What recent Budgets mean for FICs
Two changes since the Autumn Budget 2024 affect the case for a FIC. The first is that the reform of Agricultural Property Relief (APR) and Business Property Relief (BPR) was softened: from 6 April 2026, 100% relief applies to the first £2.5 million of qualifying business and agricultural property, rather than the £1 million first announced, and any unused allowance can pass to a surviving spouse or civil partner. Families with large qualifying businesses still face more Inheritance Tax on value above the allowance, but fewer estates are affected than first expected.
The second is that the Autumn Budget 2025 widened the gap between personal and corporate tax on investment income. From 6 April 2027, Income Tax on property and savings income rises by two percentage points in each band, to 22%, 42% and 47%, with the new property rates applying in England, Wales and Northern Ireland. Corporation Tax on a FIC’s profits is unchanged at 25%, so holding rental property or cash deposits through a FIC becomes comparatively more attractive than holding them personally, although dividend rates on profits paid out also rose from April 2026 (see Tax on dividends below).
Following the Autumn Budget 2024, Richard Grimster, Partner and Head of Tax, shares his thoughts on why FICs may now become a popular investment vessel:
Given the certainty provided by todays fiscal event for the corporate tax regime, contrasted with the increased IHT take from previously qualifying assets held more typically by trusts, we expect many more wealthy families to consider Family Investment Companies as a means to facilitate the transfer of wealth while retaining sufficient levels of control.”
What is a Family Investment Company (FIC)?
A FIC is typically a UK resident limited liability company, the shares of which are owned by family members. Usually, the sole activity of the company is the making and holding of family investments.
A FIC can allow the founders of the business to retain some involvement in the company and possibly a managed income stream but also pass the investments down to their children or grandchildren. Broadly, this can be achieved with gifts and/or different classes of shares within the FIC, which can have varying rights to capital, income, and voting.
The primary aim of a FIC is to facilitate tax-efficient wealth transfer and provide a robust framework for managing family assets such as property, investment portfolios and money. FICs have become a popular alternative to trusts due to their tax benefits.
How are FICs taxed?
FICs have become a popular vehicle for estate planning. Historically, trusts were used for these purposes, but they are now subject to high rates of tax on income and periodic Inheritance Tax charges as well as increased regulatory requirements.
That is not to say there is not a place for trusts within a FIC scenario; it is common for FIC shareholdings to be transferred to and held in trust.
Inheritance Tax (IHT)
The initial creation of the FIC does not usually constitute a gift for Inheritance Tax purposes, there is no change in the person’s taxable estate if they sell assets to the FIC for their current value.
Making a gift of cash to subscribe for shares (or a gift of shares as is sometimes preferred) to your children would reduce the value of an individual’s estate for Inheritance Tax purposes, if they then survived 7 years from the date of gift (so the gifts were Potentially Exempt Transfers or PETs) the value of the gift will fall out of their estate for IHT purposes.
Corporation Tax
The current rates of corporation tax at which any income and capital gains are taxed within the FIC are significantly lower than the top rates of Income Tax and Capital Gains Tax (CGT) payable when assets are held in the trust or directly by family members. If the profits are to be retained within the company no further tax would be payable but there will be further potential tax charges on any distribution of income or capital to the shareholders.
Because most FICs are close investment-holding companies, they pay Corporation Tax at the main rate of 25% and cannot use the 19% small profits rate or marginal relief.
However, they are able to benefit from the wide tax exemptions for dividend income which means that they can be a very efficient way to hold investment portfolios targeting income returns.
Expenses incurred by the company in managing its investments and running its business will be eligible for corporation tax relief which can include interest paid on loans from the family, pension contributions for those helping manage the investments, etc.
Tax on dividends
When dividends are paid out of a FIC, they are taxed in the hands of the recipients. There is no UK withholding tax on dividends paid.
UK resident individual shareholders can receive £500 of dividends a year tax-free under the dividend allowance. Above that, dividends are taxed at their own rates, which rose by two percentage points from 6 April 2026: 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers, with the additional rate unchanged at 39.35%.
How the FIC and the family are taxed will depend on their personal circumstances including how the FIC is capitalised, the rights of the various share classes and the investments it holds. Please contact us to provide more specific tax treatment for the FIC you wish to set up.
Advantages and disadvantages of a FIC
It is often considered much easier to gift small holdings in a company than to gift small percentage ownership in a large number of underlying assets. As such a FIC can help families manage joint ownership in a structured way.
Tax benefits
There are many tax benefits to setting up a FIC, for example:
- In certain circumstances, an individual could make a gift on formation of the company to reduce the value of their estate for Inheritance Tax (IHT) purposes, by either transferring shares or cash for the subscription of shares to their children or grandchildren. These initial gifts are potentially exempt transfers (PETs) and if the individual as the donor then survives seven years from the date of the gift, the value of the gift will fall out of their estate for IHT purposes.
- A FIC can be used to reduce IHT where Business Property Relief (BPR) is not available, for example where the business consists of a property investment portfolio.
- The on-going accumulation of profits in the FIC will attract tax at the Corporation Tax rate (25%) which is currently much lower than personal Income Tax rates for higher rate taxpayers, making companies attractive vehicles to hold investments on behalf of individuals. The gap widens from 6 April 2027, when the higher rate on property and savings income rises to 42%.
- Extracting funds from the FIC can be done in a variety of ways although the overarching purpose of the FIC is typically to reinvest profits and create long term value.
For more examples of the tax benefits of a FIC or further ways to extract funds in tax efficient ways, please contact us for further details.
Tax traps
There are also a few tax traps with FICs, for example:
- Capitalising a FIC with existing assets held at gains can create large capital and transfers taxes (e.g. a property portfolio transfer can trigger CGT and SDLT). Establishing the FIC in as efficient a way as possible requires a good understanding of your existing assets and affairs.
- A FIC may give rise to an element of ‘double tax’ on capital gains arising, however this can be managed with planning on when best to the extract profits to make use of lower rate tax bands and allowances. Please contact us for more details on how to manage this.
- Shares that have income rights without capital or voting rights would be considered as substantially a right to income which may therefore fall within the settlements legislation and so shares with full voting, capital and income rights should be considered instead.
For more examples of the tax traps in a FIC, please contact us for further details.
Administrative requirements
- The disadvantages of setting up a FIC are the administrative requirements of running a company and the public nature of its filings, the possible double layer of tax on profits extracted, and the costs of exiting the arrangement by liquidation or demerger if the FIC becomes unsuitable for future generations.
- The structuring of FICs is a complex area with various options on how to hold the shares, and therefore, if a FIC structure is implemented, it is advisable that legal advice is sought in addition to tax advice.
Key considerations
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FICs are designed for long term investment
Much like trusts the aim is to accumulate wealth. Personal tax liabilities may occur on the extraction of funds from the company.
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Legal advice is necessary
Establishing a FIC involves incorporating a limited company. This requires drafting and filing the necessary documents, including the Memorandum and Articles of Association, with Companies House.
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As a FIC is a UK company, Companies House filing requirements apply
Essentially as you have set up a company, there is a lot more administration than other investment or succession funds. Since 18 November 2025, every director and person with significant control (PSC) must also verify their identity with Companies House, and a new company cannot be incorporated until its first directors have done so. Our team can assist with these administrative tasks associated with having to run a company such as bookkeeping, accounts, payroll, VAT and tax returns.
How can Price Bailey help?
Establishing a FIC must be thoroughly considered depending on your goals, needs, and specific circumstances. Despite the benefits of a FIC, as with every potential strategy, disadvantages exist too and so you should appoint an adviser who is able to help you weigh these and critically assess the likelihood of a FIC being appropriate for you. Our team at Price Bailey are suitably positioned to deal with enquiries regarding FICs.
Should you require further detail please complete the form below to contact one of our experts…
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.
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