For those looking to pass wealth to the next generation while retaining some control, the two most common options are, Family Investment Control (FIC’s) and Trusts.
But which one is more suitable for you? Or do you need both?
With tax rules shifting and estate planning under increased scrutiny, getting the right structure in place is more crucial than ever.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- Comparing control, flexibility and tax implications between Family Investments Companies and Trusts
- When it makes sense to use both structures
Understanding Family Investment Companies
A Family Investment Company is, at its core, a standard limited company.
What makes it ‘family-focused’, is how the shares are structured and managed.
Parents or founders typically retain through voting rights or a ‘golden share’, while gifting non-voting or growth shares to adult children or other family members.
This setup allows you to:
- Pass value to children or grandchildren
- Retain control over investment decisions and distributions
- Create different share classes to manage risk and future planning
Often, these are referred to as ‘Alphabet Shares’ or ‘Growth Shares’ , and they offer
flexibility around how wealth is distributed while maintaining centralised control.
Additionally, as the shares are passed down, they may qualify as Potentially Exempt
Transfers (PET’s) for Inheritance Tax (IHT’s), provided the donor survives for 7 years.
Another tax advantage is the valuation discount on minority shareholdings.
Where children hold a minority stake, the overall value for IHT purposes can be reduced by 25- 30%, thanks to minority interest discounts.
What about Trusts?
Trusts, by contrast, are not businesses.
They are legal arrangements that hold assets on behalf of beneficiaries.
Control lies with the trustees, which can include the settler (the person who creates the trust), but must follow trust law and the terms of the trust deed.
Trusts offer strong asset protection and are especially useful for:
- Taking assets out of your estate to reduce IHT
- Providing for children or vulnerable beneficiaries
- Managing wealth across generations with clear rules
However, the key disadvantage of trusts is tax. Since 2006, UK tax law has imposed higher rates on many trusts.
Assets placed into a discretionary trust can be taxed at up to 45% on income and 20% upfront if they exceed the nil rate band, currently £325,000.
There are also potential 10-year anniversary charges and exit charges as funds are distributed.
The Tax Comparison in a Nutshell
Let’s break down the core tax elements between the two:
| Feature | Family Investment Company | Trust |
|---|---|---|
| Income Tax | 25% Corporation Tax | Up to 45% on trust income |
| IHT Treatment | Value retained unless PET rules apply | Assets removed from estate after 7 years (or sooner for certain types) |
| Control | Via Articles and Share Structure | Held by trustees, governed by trust deed |
| Asset Protection | Moderate | Strong |
| Flexibility | High (customisable via Articles) | Medium (Subject to trust law) |
It’s important to note that the Corporation Tax rate of 25% applies only if profits exceed £250,000.
If a FIC qualifies for marginal relief or is a smaller business, this rate may be lower.
Meanwhile, trusts are taxed on their gross income, and often the effective tax
burden is higher overall.
Should You Use Both?
In many cases, high-net-worth individuals choose to combine both structures to
maximise the benefits. For example:
- A trust could hold shares in a Family Investment Company, allowing trustees to manage the shares on behalf of minors or vulnerable beneficiaries.
- A FIC can be funded using a loan from a trust, or vice versa, offering control over how and when funds are moved.
This layered approach offers asset protection, estate planning, and family governance, but requires careful legal drafting and tax advice.
Summary
If you value control, long-term growth and flexibility, a Family Investment Company is often the better option.
If your priority is asset protection and moving wealth out of your estate quickly, then a trust may be more appropriate.
For many high-net-worth families, a blend of both structures works best.
Whichever route you choose, make sure you get regulated, professional advice, from places such as us here at Tax Expert.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
