Family Investment Company -- Tax and IHT Planning 2026

A family investment company (FIC) has become one of the most discussed wealth planning structures for high-net-worth families in the UK over the past decade. It allows parents to transfer investment growth to children while retaining voting control, taking advantage of lower corporation tax rates, and potentially reducing IHT exposure over time. However, HMRC has scrutinised these arrangements closely since 2019, and the tax benefits must be carefully balanced against setup and running costs.

What Is a Family Investment Company?

A family investment company is a private limited company established to hold and manage the family's investment assets. These assets might include cash, listed shares, investment bonds, commercial property, or other investments. The company is controlled by the founders (typically parents or grandparents) through voting shares, while future investment growth is channelled to the next generation through non-voting shares.

The FIC structure has grown in popularity partly because the rules governing trusts became less favourable after the Finance Act 2006, which treated most new trusts as relevant property trusts subject to periodic and exit charges. A company does not face these charges in the same way, and the corporate form offers greater flexibility on income extraction and share restructuring.

Share Classes and Control

A typical FIC uses multiple share classes to separate economic rights from voting rights:

A shares are held by the founders (parents). These carry all or most of the voting rights, allowing the founders to control the company -- including investment decisions, director appointments, and dividend policy -- for as long as they choose. A shares may have limited or no economic participation in growth.

B shares and C shares are held by children or other family members. These are non-voting (or have restricted voting rights) but carry economic rights to dividends and the growth in company value. As the FIC's investments increase in value, the B and C shareholders benefit from the appreciation without the founders losing control.

This structure is sometimes replicated across generations, with grandchildren receiving D shares and so on. The share allotment and rights should be documented in the articles of association and any shareholders' agreement, drafted by a solicitor.

Preference shares can also be used to allow founders to extract a priority return on their initial capital before growth shares participate.

Funding the FIC

The FIC is typically funded in one of three ways. The founders can subscribe for shares at par value and then lend additional capital to the company via a director's loan. The loan earns no interest (or a commercial rate) and can be repaid to the founders over time, effectively allowing them to access their capital. This is similar in structure to a loan trust.

Alternatively, the founders can simply invest cash into the company in exchange for shares, making a gift of the shares to family members either at the outset or subsequently. A third option is to transfer existing investment assets into the FIC, though this can trigger CGT on the transfer (unlike a gift to a trust, which can sometimes be held over for CGT).

Each funding method has different tax consequences and should be structured carefully.

Income Tax and Corporation Tax Within the FIC

One of the primary tax advantages of a FIC is that investment income and gains within the company are subject to corporation tax rather than income tax or CGT at personal rates.

In 2026/27, the corporation tax rates are 19% for profits up to GBP 50,000 (small profits rate) and 25% for profits above GBP 250,000 (main rate), with marginal relief applying between these thresholds.

By contrast, a higher-rate individual taxpayer pays 40% income tax on investment income (or 45% at the additional rate above GBP 125,140), and 24% CGT on investment gains (18% for basic-rate taxpayers). Dividend income from UK shares within the FIC is exempt from corporation tax under the substantial shareholdings exemption or the dividend exemption rules, making the FIC particularly efficient for holding dividend-paying portfolios.

The difference between a 25% corporation tax rate and a 45% additional rate of income tax is substantial. Over many years of compounding, the lower tax drag within the FIC can significantly increase the overall family wealth.

Extracting Income from the FIC

The founders and other family members can extract money from the FIC in several ways. Salary can be paid to directors (typically the founders) for genuine services rendered. Salary is deductible against corporation tax within the FIC and is subject to income tax and national insurance in the hands of the recipient. For 2026/27, the first GBP 12,570 (personal allowance) is tax-free.

Dividends can be declared to shareholders according to their share class entitlements. Dividends are not deductible against corporation tax within the FIC but are received by shareholders subject to dividend tax rates -- 8.75% basic rate, 33.75% higher rate, 39.35% additional rate -- which are lower than income tax rates on other investment income.

By directing dividends to children who are basic-rate taxpayers (or have unused personal allowances), the family can extract income from the FIC at a very low overall tax rate. This income-splitting opportunity is a significant attraction of the FIC.

Repayment of director's loans (if the FIC was funded by loans) allows founders to reclaim their initial capital tax-free up to the outstanding loan balance.

IHT Position -- Not BPR-Qualifying

This is the most important point for many families considering a FIC for IHT planning. Investment-only FICs -- those that hold shares, bonds, cash, or commercial investment property -- do not qualify for business property relief (BPR). BPR provides 100% IHT relief for qualifying business assets held for at least two years, but investment businesses are specifically excluded.

This means the shares in a FIC are subject to IHT at 40% on death, just like any other investment asset. The FIC does not give an automatic IHT advantage -- it is not a substitute for a trust, a discounted gift trust, or other IHT-specific planning.

The IHT benefit from a FIC comes instead from the ability to make gifts of non-voting shares to children. Such gifts may be PETs (if shares are given outright) or CLTs (if shares are given via a trust). If the founder survives seven years from the gift, the shares fall outside the estate. The growth on those shares -- which could be substantial if the FIC has performed well -- also exits the estate.

The IHT position is therefore broadly similar to making a direct gift of investments, except that the FIC structure allows the gift to occur while the founders retain operational control.

If the FIC holds a trading business subsidiary (not just investments), the trading subsidiary's value may qualify for BPR, but the holding company FIC itself is assessed on whether its own activities are trading or investment.

CGT When FIC Shares Are Sold

When FIC shares are sold -- whether by the founders, children, or via a trust -- CGT applies on any gain. The CGT rates in 2026/27 are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers. The annual exempt amount (AEA) is GBP 3,000.

Business asset disposal relief (BADR) at 18% may be available on qualifying business assets, but an investment-only FIC is unlikely to meet the trading requirement for BADR.

On the death of a shareholder, the shares pass at probate value with no CGT uplift available (IHT applies instead). CGT base cost is rebased to market value at death, which eliminates any accumulated gain for the next generation.

Trust exit charges are not applicable to a FIC (unlike a trust), which is one structural advantage. However, companies do face potential double taxation -- corporation tax on gains within the company and then CGT on shareholder disposal -- which can reduce the overall efficiency of extracting capital compared with holding investments personally.

HMRC Scrutiny and Post-2019 Environment

HMRC announced a review of FICs in 2019, expressing concern that they were being used primarily to convert income tax liabilities into lower corporation tax rates. The review has not resulted in specific anti-avoidance legislation to date, but HMRC has made clear that:

FICs must have genuine commercial substance. A company set up purely to hold investments without any genuine business purpose may be challenged.

Income splitting through non-voting dividend shares for family members must be commercially genuine. The settlements legislation (which attributes income from arrangements between spouses to the transferor) has been considered in the FIC context, though HMRC's guidance has not directly applied it to FIC dividends to children.

Transfer pricing rules and associated company rules may affect FICs in group structures.

Professional legal and tax advice is essential before establishing a FIC. A poorly structured FIC can attract HMRC attention and produce an outcome worse than simply holding investments personally.

Professional Costs and Running Costs

A FIC involves real ongoing costs. Setup costs include legal fees for drafting the memorandum and articles of association, share allotment documents, and any shareholders' agreement. These typically range from GBP 3,000 to GBP 10,000 depending on complexity.

Running costs include annual accounts preparation and corporation tax returns (typically GBP 1,500 to GBP 5,000 per year), Companies House filings, any investment management costs, and potentially director remuneration if a salary strategy is used.

These costs must be weighed against the tax savings achievable. For families with GBP 500,000 or more to invest within the FIC, the annual corporation tax saving alone (relative to personal ownership) can easily cover the running costs. For smaller amounts the economics are less compelling.

FIC vs Discretionary Trust -- Decision Matrix

The choice between a FIC and a discretionary trust depends on several factors. A FIC is generally preferable when the family wants the founders to retain absolute operational control for many years, when the amounts involved are large enough to justify the corporate running costs, and when ongoing income splitting between family members at different tax rates is important.

A discretionary trust is generally preferable when the family wants flexibility to change beneficiaries over time (trusts allow variation of beneficiaries without share restructuring), when the amounts involved are smaller (trusts have lower running costs), and when the planning horizon is shorter.

In practice, many high-net-worth families use both structures in parallel -- a FIC for ongoing investment management and income planning, and a discretionary trust for specific IHT-driven gifts.