Each person's inheritance tax nil-rate band (GOV.UK). Above it, estates face 40% — and family investment companies are one lawful structure families use to move future growth outside the estate.
What Is a Family Investment Company?
A family investment company (FIC) is a private limited company set up to hold a family's investments — typically share portfolios, funds or property. The founders (usually parents) keep control through voting shares and often a directorship, while children or a family trust hold non-voting shares that capture the future growth in value. The company invests; profits are taxed at corporation tax rates; and the share structure decides who ultimately benefits.
FICs rose to prominence over the last decade as an alternative to trusts, whose lifetime gifts above the nil-rate band attract an immediate 20% inheritance tax entry charge. A FIC lets wealth be reorganised inside a familiar company wrapper instead. To be clear at the outset: this page is a plain-English overview, not a recommendation — a FIC is a bespoke legal structure and professional tax and legal advice is essential before creating one.
Why Wealthy Families Use Them
- Corporate tax rates on investment returns. Company profits pay corporation tax at 19% (profits up to £50,000) to 25% (above £250,000) with marginal relief between (GOV.UK) — against personal rates of up to 45% on interest and rent or 39.35% on dividends
- Dividends roll up almost tax-free inside the company. Most dividends a UK company receives are exempt from corporation tax under Part 9A of the Corporation Tax Act 2009 (HMRC's Company Taxation Manual, CTM02060), so a portfolio's dividend income can compound gross until it is paid out
- Control without ownership. Parents can gift growth shares worth relatively little today, keep the voting rights, and let decades of growth accrue outside their estates
- Family governance. Articles and shareholder agreements can lock in who can hold shares, what happens on divorce, and when dividends flow — protections trusts users value, in company form
The Inheritance Tax Angle
IHT is charged at 40% on estates above the £325,000 nil-rate band (plus the £175,000 residence nil-rate band where a home passes to direct descendants) — thresholds long frozen (GOV.UK). Gifting FIC shares to adult children is normally a potentially exempt transfer: survive seven years and the gift leaves your estate entirely; die within seven and it comes back into account, with taper relief reducing the tax (not the gift) on gifts made three to seven years before death — and taper only helps once cumulative gifts exceed the nil-rate band (GOV.UK). The FIC's real IHT power is simpler: future growth on the children's shares never enters the parents' estates at all.
What Does HMRC Think of FICs?
This is the question advisers get asked most, and the answer is unusually well documented. HMRC set up a specialist unit in 2019 to review FICs and their inheritance tax implications. In May 2021 it confirmed the unit had been disbanded, having found no evidence of a correlation between FICs and non-compliant behaviour — FICs are now treated as "business as usual", as reported by the professional body STEP and law firm Kingsley Napley following a Freedom of Information request. In short: a properly run FIC is mainstream planning, not a scheme. That does not make every FIC sensible — it makes the boring details (funding, share rights, extraction plans) the thing that decides success.
The Catches
FICs have real costs, and they suit fewer families than the marketing suggests:
| Issue | Why it matters |
|---|---|
| Double taxation on extraction | Getting money out means dividend tax on top of corporation tax. On £100,000 of company profit taxed at the 25% main rate (investment-holding companies don't qualify for the small-profits rate), then paid out to an additional-rate shareholder: £25,000 corporation tax + £29,316 dividend tax = £54,316 — about 54.3% combined on 2025/26 rates (thresholds frozen to 2028) |
| Running costs | Accounts, filings and advice, every year, forever — plus public information at Companies House unless an unlimited company is used |
| Funding the FIC | Cash is simple (often lent, so loan repayments come back tax-free); transferring existing assets can crystallise capital gains tax at up to 24% (GOV.UK) |
| Lost personal allowances | Assets inside the company no longer use your personal CGT annual exempt amount, dividend allowance or ISA capacity |
| Law can change | A FIC is a decades-long structure exposed to future corporation tax and IHT reform |
Because of the fixed costs, FICs are generally discussed for substantial investment wealth — there is no official minimum, but they rarely make sense for portfolios that pensions and ISAs (£60,000 and £20,000 of annual capacity respectively — GOV.UK) can shelter on their own. For most high earners, the sequence in our income structuring guide and £100k trap planning come first; a FIC is a later, advised step, usually alongside wills and broader inheritance tax planning.
Take advice — genuinely. Share rights, funding route, dividend policy and exit planning interact with IHT, CGT, income tax and company law simultaneously. This is one area where DIY structures reliably cost more than the professional fees they avoided.
Frequently Asked Questions
What is a family investment company?
A private limited company that holds a family's investments. Parents typically keep the voting shares and control; children hold shares that capture future growth. Profits are taxed at corporation tax rates (19–25%, GOV.UK) rather than personal rates, and share gifts can fall out of the estate under the seven-year rule.
Do family investment companies avoid inheritance tax?
They can reduce it, lawfully. Gifting shares is a potentially exempt transfer — survive seven years and it leaves your estate — and future growth accrues in the children's shares from day one. Nothing about a FIC bypasses IHT on value you keep, and dying within seven years brings gifts back into account (GOV.UK).
Does HMRC target family investment companies?
No. HMRC ran a specialist FIC review unit from 2019 and disbanded it in 2021 after finding no correlation between FICs and non-compliance, treating them as business as usual — as reported by STEP and Kingsley Napley following a Freedom of Information request. Individual arrangements still need to be implemented properly.
How much money do you need for a FIC to be worth it?
There is no official threshold. The honest test: a FIC only earns its permanent accountancy, legal and administration costs once pensions (£60,000 a year) and ISAs (£20,000 a year) are fully used and there is still substantial investable wealth — advisers typically frame it as a seven-figure conversation. Take professional advice on your numbers.
Related Guides
Keep reading with these related guides and articles:
- How the Wealthy Structure Their Income — salary vs dividends vs gains vs pensions
- Inheritance Tax Planning — the wider IHT toolkit
- Self-Employed vs Limited Company — company basics if the wrapper is new to you
- All Tax Guides — the full guide library
- The £100k Tax Trap — fix the 62% zone before exotic structures
- High Earner Tax Tips — practical moves for six-figure earners
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