Family Investment Companies: a practical solution to managing and protecting family wealth

May 8, 2025

Family Investment Companies: a practical solution to managing and protecting family wealth

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By Stephen Thompson

In today’s climate of increasing tax scrutiny and intergenerational wealth planning, family investment companies (FICs) are gaining traction as a practical and strategic alternative to traditional trusts. They offer a flexible structure for holding family assets, while keeping control, getting tax advantages, and enabling long-term succession planning.

Our expert, Stephen, explores the role FICs can play in wealth protection, alongside the key risks that everyone should know.

What is a family investment company?

A family investment company is typically a private company limited by shares, that holds investments for a single family. It is often funded by the “older generation” and used to pass wealth to children and grandchildren in a tax-efficient and controlled way.

Key features:

• Holds assets like shares, property or cash
• Ownership is via shares and control is exercised by the directors (usually the parents)
• Typically has bespoke constitutional documents providing tailored rights and restrictions
• Can be structured to restrict who can own shares (e.g. bloodline relatives only)

Why families are turning to family investment companies?

FICs are an increasingly popular option, allowing one generation to manage succession without relinquishing control.

Common reasons to set up a family investment company include:

• Retaining day-to-day control while transferring ownership in stages
• Managing how income or capital is paid to family members
• Limiting inheritance tax liability
• Protecting assets against risks such as divorce or bankruptcy
• Introducing structured governance (such as pre-agreed family constitutions or shareholder protocols)

How is a family investment company funded?

There are a number of ways in which to introduce money or assets into an FIC, including:

• Cash gift – the founders provide cash to the company and issue shares to family members. If structured properly, this can be a potentially exempt transfer (PET) for inheritance tax falling outside the estate after 7 years
• Loan – the founders lend money to the FIC, which can later be repaid tax-free
• Asset sale – the founders sell assets (e.g. shares or property) to the FIC at market value, creating a loan account for the unpaid balance

Each method has tax implications and needs to be carefully planned with the benefit of specialist tax advice.

How is control maintained?

One of the central benefits of a FIC is that the older generation can retain control without directly owning all of the value.

Common control mechanisms include:

• Voting shares – founders retain a separate class of shares with voting rights
• Directorship – founders act as directors and make day-to-day decisions
• Articles & shareholder agreements – these can be tailored to restrict share transfers, appointment of directors and dividend rights

What about dividends and income?

FICs often use “alphabet shares” to enable tailored dividend payments to individual family members/shareholders, allowing income to be managed in line with tax brackets and personal needs.

Other possible options include:

• Preference shares for individuals requiring fixed income
• Growth shares to allocate future capital growth to the next generation

Tax considerations:

When structured properly, FICs can deliver long-term tax efficiency. They are subject to corporation tax (currently 25%).

However:

• Most dividends received are exempt from corporation tax
• Investment gains are taxed at the corporate rate

• There is no annual CGT exemption, unlike with individuals or trusts

When profits are extracted, dividends to shareholders are taxed again, creating double taxation

For this reason, many families opt to reinvest profits or extract value via loan repayments or interest payments where appropriate.

What are the key risks and considerations?

FICs can be highly advantageous, but are not without risk. Careful structuring and tax advice is a necessary step when setting up a family investment company. Important considerations include:

• HMRC scrutiny – FICs are firmly on HMRC’s radar, especially if they are using interest-free loans or unusual voting structures.
• No IHT relief – shares in a FIC don’t qualify for Business Property Relief due to their classification as an investment company
• Double taxation – income may be taxed at both company and shareholder levels
• Admin burden – regular filings, record keeping and tax compliance are all mandatory
• Valuation – minority shareholdings may attract discounts for IHT purposes, but only between non-spouse shareholders

When are family investment companies worth considering?

FICs tend to work best when:

• There is significant capital to invest
• Maintaining control and governance are a priority when passing on ownership
• The family is focused on long-term investment and growth as opposed to short-term distributions
• The individuals involved are comfortable with the ongoing corporate and tax admin

Key take aways

FICs can offer a compelling route to structured, tax-aware, intergenerational planning. But as with any sophisticated wealth planning tool, they aren’t a “one-size-fits-all” solution.

Every FIC should be carefully tailored to the family’s goals, tax position, and risk appetite. Off-the-shelf solutions or generic online templates are unlikely to serve their intended purpose effectively or deliver the desired benefits.

For tailored advice when it comes to setting up an FIC, get in touch with our expert corporate and commercial team using the contact form or on 02920 829 100 to see how we can help.

*The information contained within this article is for guidance purposes only and specific legal and tax advice should be obtained before considering setting up a family investment company*