Family Investment Companies were once regarded as a specialist planning tool, but that is changing. With frozen Inheritance Tax thresholds, higher investment taxes and pensions moving into the IHT net from April 2027, more families are looking for ways to pass wealth down without surrendering control too early.
A Family Investment Company, or FIC, can provide that balance by helping families direct future growth towards the next generation while retaining control over how wealth is managed.
(Reading Time: Approx. 6 minutes)
Topics Discussed:
- Why Family Investment Companies are becoming more relevant for estate and succession planning.
- The main tax advantages, practical benefits and risks to consider before setting one up.
What Is a Family Investment Company?
A Family Investment Company is usually a private company established to hold investments for members of the same family. There is no statutory definition of an FIC, and HMRC has acknowledged that these companies can be structured in different ways.
In practice, an FIC often has several generations of shareholders and different share classes. Parents may retain voting rights and management control, while children or grandchildren hold shares that participate in future income or capital growth.
This separation between control and economic ownership is a major attraction. It allows the older generation to remain involved while future growth is directed towards younger family members.
Why FICs Are Becoming More Popular
In its 2021 Wealthy External Stakeholders Forum findings, HMRC said that FICs had become increasingly popular and, in recent years, more popular than trusts. Its sample showed that the average FIC reviewed held approximately £5 million of assets, with founders most commonly aged over 50.
More recent evidence suggests continued growth. Evelyn Partners said in February 2026 that FICs were gaining renewed relevance because of tax pressures and pension changes. Scottish Widows then reported in April 2026 that 18% of financial advisers were already recommending FICs in response to the pension IHT reforms due from April 2027.
Why Trust Taxation Changed the Picture
Historically, a discretionary trust was often the obvious choice for someone wanting to pass wealth down while retaining some control. The position changed significantly following the 2006 reforms to trust taxation.
Large lifetime transfers into discretionary trusts can fall within the relevant property regime. Depending on the value transferred and the available nil-rate band, this can produce an immediate lifetime IHT charge of 20%, followed by potential charges of up to 6% every ten years and possible exit charges. HMRC sets out this treatment in its Inheritance Tax guidance.
The IHT nil-rate band has also remained frozen at £325,000 since 2009 and is currently set to remain at that level until 2030.
An FIC can provide a different route. It may be funded using share capital and shareholder loans, while shares carrying future growth are held by or transferred to the next generation. An outright gift of shares to an adult child will normally be a potentially exempt transfer rather than an immediately chargeable transfer into the relevant property regime.
The IHT Position
An FIC does not automatically remove wealth from Inheritance Tax. If a parent introduces £3 million as a shareholder loan, the company still owes the parent £3 million, so the loan remains an asset in the parent’s estate.
The planning opportunity is usually in future growth. Where children or grandchildren own growth shares, increases in the value of the underlying investments can potentially accrue to those shares rather than to the parent’s estate.
For this reason, an FIC is better viewed as an estate-freezing and future-growth planning structure rather than an automatic IHT exemption.
The Corporation Tax Attraction
A traditional investment-based FIC will commonly be a close investment-holding company. HMRC confirms that these companies generally do not qualify for the 19% small profits Corporation Tax rate or marginal relief, meaning they normally pay Corporation Tax at the main rate of 25%.
A significant advantage for securities-based FICs is dividend income. Most qualifying dividends received by one UK company from another company are exempt from Corporation Tax.
For 2026/27, a higher-rate individual receiving dividends personally can face tax at 35.75%, while an additional-rate taxpayer can face 39.35%, according to GOV.UK’s current rates and allowances. Where qualifying dividends are received inside an FIC, more income can potentially remain available for reinvestment, creating a long-term compounding advantage.
Why the Current Tax Environment Matters
The FIC structure has not suddenly changed, but the surrounding tax system has.
The IHT nil-rate band remains frozen, dividend tax rates increased from April 2026, and savings and property income rates are due to rise from April 2027. Most significantly, HMRC has confirmed that from 6 April 2027 most unused pension funds and pension death benefits will form part of the estate for IHT purposes.
For many wealthy families, this changes the assumption that pension wealth should simply be preserved and passed on outside the estate, helping explain why advisers are increasingly considering FICs.
What HMRC Thinks About FICs
HMRC created a specialist Family Investment Company team in April 2019 to examine who was using FICs, how they were structured and whether they presented a greater risk of avoidance or non-compliance.
HMRC found no evidence that those establishing FICs were more inclined towards avoidance or non-compliant behaviour. The specialist team was subsequently disbanded and FICs moved into what HMRC described as business as usual.
This does not mean HMRC has approved every FIC arrangement. Transactions within the company still need to comply with the ordinary rules for IHT, CGT, Corporation Tax and SDLT.
Where FIC Planning Can Go Wrong
A poorly structured FIC can create significant tax problems. Value shifting between share classes may create IHT issues, particularly where substantial value is transferred without a proper valuation. Gifts to minor children can also fall within the parental settlements rules, meaning income may still be taxed on the parent.
Moving existing assets into an FIC can trigger immediate tax. Investments transferred to a connected company may be treated at market value for CGT, while property transfers can create SDLT charges based on market value.
A pure investment company will also generally not qualify for IHT Business Relief simply because it is a company. The planning lies in the design of the structure, not merely in incorporating a company.
Why Families Like FICs
The attraction of an FIC is the combination of control, succession planning, investment management and the ability to direct future growth towards younger generations.
Parents can potentially remain directors and voting shareholders, while children participate economically through separate share classes. Bespoke articles and shareholder agreements can also govern ownership, voting, dividends and share transfers. For many families, this provides a useful middle ground between retaining everything personally and making large outright gifts with no continuing control.
Summary
Family Investment Companies are becoming an increasingly important part of intergenerational wealth planning. Frozen IHT thresholds, pension changes and higher personal investment taxes are strengthening the case for considering them alongside trusts and other succession structures.
They can be highly effective, but the funding, share structure, valuations and tax consequences must be considered carefully from the outset. If you are considering setting up an FIC, Tax Expert can help you assess whether the structure is suitable and ensure it is designed around your family’s long-term tax and succession objectives.
Fill out our form here, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
