Overview
A Family Investment Company (FIC) is a privately held limited company used by high-net-worth families to hold and manage investments, property, and other assets. Unlike a family trust — which is governed by trust law and involves a separation of legal ownership from beneficial ownership — a FIC operates under ordinary company law, with shareholders holding legal and beneficial interests in their shares.
FICs have grown significantly in popularity over the past decade, partly as a planning alternative following restrictions on family trusts and partly because corporation tax rates (even after the increase to 25% for larger profits) remain substantially lower than the top rate of income tax (45%) or the higher rates of capital gains tax. For internationally mobile high-net-worth families, FICs offer a structured vehicle for consolidating family wealth, but their suitability depends heavily on individual circumstances.
This guide is for general information only and does not constitute financial or tax advice. FIC structures are complex and require professional advice from both a tax adviser and a corporate lawyer before implementation.
How a Family Investment Company Works
The Basic Structure
In a typical FIC:
- A founder (often a parent or grandparent) transfers cash or assets to the company, usually via a mixture of loan account (to preserve the ability to extract funds tax-free later) and share subscription.
- The company holds investments — equities, bonds, property, private company shareholdings — and manages them over time.
- Family members (children, grandchildren, spouses) hold shares in the company, often different classes of shares carrying different rights.
- The company pays corporation tax on income and gains; after-tax profits are retained in the company or distributed as dividends to shareholders.
The separation of the founder's economic position (via a loan account or non-voting preference shares) from the growth shares held by the next generation is fundamental to the IHT planning logic: future growth in company value accrues to the children's shares, not the founder's estate.
Director Loan Accounts
Where the founder has transferred cash to the FIC in exchange for a loan (rather than share capital), this is reflected in a director loan account. The loan account can be repaid to the founder over time, free of further tax, providing a source of income without triggering a dividend charge. Interest can be charged on the loan (at a commercial rate), which is deductible against the company's taxable profits, though interest payments are taxable in the founder's hands.
The size and structure of the loan account versus share capital subscription requires careful thought at the outset.
Tax Treatment Inside a FIC
Corporation Tax on Investment Income
A FIC pays UK corporation tax on its taxable profits. For companies with profits below £50,000, the rate is currently 19%; for profits above £250,000 it is 25%; companies with profits between those thresholds pay a tapered rate. Dividends received from UK companies are generally exempt from corporation tax (subject to conditions), making a FIC a tax-efficient vehicle for holding shares in UK private companies or UK-listed equities that pay dividends.
Capital Gains Tax Inside a FIC
Capital gains realised within a FIC are subject to corporation tax at the applicable rate (19–25%), not to the higher rates of CGT that would apply to an individual. For a higher-rate individual taxpayer, this differential can be significant. The indexation allowance for inflation (frozen since 2017) may also be available for assets acquired before that date.
Extracting Profits: The Reinvestment Case
The primary tax advantage of a FIC is the ability to retain profits inside the company rather than distributing them immediately. A higher-rate individual receiving investment income directly pays tax at 40–45%; by contrast, profits retained within the FIC after 19–25% corporation tax have a larger base available for reinvestment. Over a long time horizon, this compounding advantage can be material.
However, extraction of profits — whether as salary, dividends, or loan repayment — creates its own tax events, and the family members holding shares will pay income tax on dividends (at dividend tax rates) when profits are ultimately distributed.
Share Structures and Income Splitting
Alphabet Shares
A well-structured FIC will typically issue multiple classes of ordinary shares — commonly referred to as "alphabet shares" — to different family members. Each class carries identical rights except that dividends can be declared on one class independently of the others. This allows the directors to direct dividends to family members who are taxed at lower rates in a given year (for example, a spouse with unused personal allowance, or an adult child who is a basic-rate taxpayer).
HMRC may challenge income-splitting arrangements where the shares are not genuinely commercially structured — in particular, the settlements legislation can attribute dividend income back to the creator of the arrangement in certain circumstances. The rules in this area are nuanced and professional advice is essential.
Preference Shares for the Founder
To preserve the IHT planning logic, the founder typically holds non-voting fixed-rate preference shares (or simply the loan account) rather than growth shares. The preference shares carry a fixed, capped return — they do not participate in growth above that threshold. This ensures that value uplift in the company's investments accrues to the growth shares held by the next generation.
Inheritance Tax Treatment
How Growth Leaves the Estate
The IHT logic of a FIC rests on the founder having limited or no interest in the growth shares from the outset. Because the growth shares are subscribed for by the children or grandchildren (not gifted to them, which would create a potentially exempt transfer or a gift with reservation), future growth in the value of those shares is outside the founder's estate from day one.
The loan account is an asset of the founder's estate but can be drawn down over time or forgiven (as a gift). The founder's preference shares, if structured with a fixed and limited value, represent a capped estate asset.
Gifts to the FIC
If the founder transfers assets to the FIC that are worth more than the consideration received (for example, transferring investments worth £1 million in exchange for preference shares worth less than £1 million and a loan account), the difference may be treated as a gift for IHT purposes. If it is a gift with reservation — because the founder retains benefit in the transferred assets through their directorship — IHT consequences arise. Careful structuring is needed.
Governance and Compliance
Company Law Requirements
A FIC is a UK private limited company and must comply with the Companies Act 2006. Requirements include:
- Filing annual accounts at Companies House (which are publicly accessible)
- Filing a confirmation statement annually
- Maintaining registers of members, directors, and persons with significant control (PSC register — also publicly accessible)
- Holding board meetings and maintaining minutes
The public filing requirement is an important consideration for families who value privacy. Unlike a trust, a company's ownership is on public record.
Family Governance
Beyond the legal requirements, families should establish clear governance arrangements for the FIC: who are the directors, how are investment decisions made, what happens if family circumstances change (divorce, death of a shareholder, disagreement between generations). A well-drafted shareholders' agreement and articles of association are essential.
FIC vs Trust: Choosing the Right Vehicle
The choice between a FIC and a discretionary trust depends on a range of factors:
| Factor | FIC | Discretionary Trust |
|---|---|---|
| Control | Directors retain operational control | Trustees have discretion |
| Privacy | Public filings at Companies House | Generally private |
| IHT on settlement | Depends on structure; may not be a transfer of value if children subscribe for growth shares | Potentially exempt transfer or chargeable lifetime transfer |
| Ongoing IHT charges | No 10-year anniversary charge | 10-year anniversary charge (up to 6% of trust value) |
| Income splitting | Possible via alphabet shares (subject to settlements rules) | Trustee discretion to distribute |
| Exit | Company liquidation | Trust distribution or winding up |
| Overseas assets | UK company owning overseas assets may create complications | Offshore trust structure available |
For internationally mobile individuals with significant offshore assets, an offshore trust structure may be more appropriate than a UK FIC. For UK-resident families with primarily UK assets, a FIC may be simpler and more cost-effective than an offshore trust.
Post-2025 Changes and FICs
The 2025 non-dom reforms do not directly target FICs, but they affect the context in which FICs operate. Individuals who were previously using the remittance basis must now consider whether a FIC — which is a UK corporate vehicle paying UK corporation tax — remains appropriate, or whether offshore structures (trusts, foundations, offshore holding companies) better suit their revised position. The interaction between FIC structures and the worldwide arising basis requires careful modelling.
How Global Investments Can Help
Global Investments works with internationally mobile high-net-worth families to design and implement wealth structuring solutions that are appropriate for their multi-jurisdictional lives. We do not offer a one-size-fits-all approach: for some families, a FIC will be the right vehicle; for others, an offshore trust, a holding company, or a simpler arrangement will be more effective.
Our advisers have over 32 years of experience working with HNW individuals in Cyprus and across the international markets we serve. We can coordinate the tax, legal, and corporate governance advice needed to establish and maintain a FIC or alternative structure, and we will always give you an honest assessment of whether the complexity and cost are justified by the benefits in your specific circumstances.
Contact us to arrange an initial consultation.
Frequently Asked Questions
What is a Family Investment Company?
A Family Investment Company (FIC) is a private limited company established by a family to hold and manage investments. Typically, the founder transfers assets into the company and family members hold shares in different classes, allowing income and capital to be distributed in a tax-efficient manner across the family.
How does a FIC help with inheritance tax planning?
If structured correctly, the founder holds non-voting shares (or loan account) rather than the growth shares of the company. Provided the growth shares are held by the next generation from outset, future investment growth accrues outside the founder's estate. The key is that the growth in value belongs to the children or grandchildren from the start — not to the founder.
Are FICs suitable for non-UK domiciliaries?
FICs are UK corporate structures and come with UK regulatory and tax obligations. For non-UK domiciliaries or those with offshore assets, an FIC may interact in complex ways with their wider tax position, including the 2025 non-dom reforms. The suitability of a FIC versus an offshore trust or other structure depends on individual circumstances.
How are retained profits taxed inside a FIC?
A FIC pays UK corporation tax on its income and gains (currently at rates between 19% and 25% depending on profits). Retaining profits inside the company rather than extracting them means the reinvestment base compounds at the after-corporate-tax rate, which is generally lower than the top rates of income tax or CGT that would apply if profits were distributed to higher-rate taxpayers.
What are alphabet shares and why are they used in FICs?
Alphabet shares are multiple classes of ordinary shares (A shares, B shares, C shares, and so on) that carry different rights to dividends. By issuing different share classes to different family members, the directors can declare a dividend on one class and not another, allowing income to be directed to the family members who can most tax-efficiently receive it in a given year.
This guide is for general information only and does not constitute financial advice or a personal recommendation. The value of investments can fall as well as rise and you may get back less than you invest. Tax rules, pension legislation, and investment regulations change — always verify current rules and seek advice from a qualified independent financial adviser before making any financial decisions.