Family Investment Companies – Your Q Answered

Family Investment Companies: 15 Questions People Ask Before Setting One Up

A family investment company (FIC) is a UK-resident private limited company where the shareholders are family members.  It is typically set up to make or hold investments such as cash, loans, properties and share portfolios to generate income or capital growth.

FICs have become increasingly popular as, for some families, they offer a simpler and more familiar structure than family trusts while providing some asset protection benefits.

They are commonly used for family succession and tax planning, allowing founders to retain control whilst passing wealth to future generations in a tax-efficient manner.  They can therefore appeal to families looking to preserve wealth, plan for succession and reduce future Inheritance Tax (IHT) exposure over time.

However, they’re not suitable for everyone. So, if you are wondering whether a FIC might be right for your family, here are 15 of the commonly asked questions. 

1. How much money do I need before a FIC becomes worthwhile?

There isn’t a fixed minimum, but in practice, FICs tend to be most effective where there are significant investment assets to hold and pass on to future generations.

For many families, this might include investment portfolios, surplus business profits, cash reserves or investment properties. As the value of the assets increases, the potential tax and succession planning benefits may become more significant too.

Example

Mr and Mrs Smith have:

• £800,000 investment portfolio.
• £400,000 cash from the sale of a business.

Rather than holding £1.2 million personally, they establish a FIC to hold future investments.

They retain control of the company while gradually introducing their adult children as shareholders as part of a long-term succession plan.

2. Can I still control the investments?

Yes. For many families, one of the main attractions of a FIC is that you can often retain control over investment decisions.

Parents commonly act as directors, deciding:

• What investments to buy or sell.
• Whether profits are reinvested.
• If and when dividends are paid.
• The overall investment strategy.

This allows wealth to begin moving through the generations without necessarily giving up day-to-day control.

3. Can my children own shares without controlling the company?

Yes.

Different classes of shares can often be created so that parents retain voting rights while children hold shares that participate in future growth.

In simple terms, this can allow your children to benefit from increases in value without giving them control over the company.

This can be particularly attractive where children are still relatively young or have little investment experience.

4. Can a FIC own property?

Yes.

Many FICs hold:

• Investment properties.
• Commercial property.
• Investment portfolios.
• Cash investments.
• Other long-term investment assets.

However, transferring existing property into a company can trigger Capital Gains Tax and Stamp Duty Land Tax, so professional advice is essential before making any transfers.

5. Does a FIC avoid IHT?

No.

A FIC is not an IHT avoidance scheme, and it doesn’t automatically remove assets from your estate.

Instead, it can form part of a wider succession planning strategy that may help reduce future IHT exposure over time.

Example

Mrs Jones establishes a FIC using £2 million of investment assets.

She retains voting control but gradually gifts shares to her two children over several years.

If those gifts are structured appropriately and the relevant IHT conditions are met, some future growth in the company’s value may accrue outside her estate rather than remaining taxable on death.

However, the tax position will depend on how the FIC is structured and the family’s wider circumstances.

6. Does HMRC approve of FICs?

FICs are a recognised form of family wealth planning.

HMRC is aware that they are used as part of succession and estate planning.

However, the tax treatment will depend on how the FIC is structured, funded and operated. Poorly designed structures or arrangements that seek to achieve unrealistic tax outcomes may attract scrutiny.

This makes getting the structure right from the outset particularly important.

7. Is a FIC better than a trust?

Not necessarily.

They are different structures, and each has its own advantages.

A trust may be appropriate where assets need protecting for vulnerable beneficiaries or where greater flexibility is required.

A FIC may be preferable where families wish to:

• Retain control.
• Build investments over many years.
• Involve multiple generations.
• Manage wealth through a corporate structure.

In many cases, trusts and FICs may also be used together as part of an overall estate planning strategy.

If you are weighing up the two options, you may find our previous article helpful: “Are family investment companies the new trusts?”

8. Can I still receive income?

Yes.

Depending on how the company is structured, you may be able to receive income from your FIC.

This could include dividends or remuneration where appropriate.

What is appropriate will depend on your wider tax position, retirement plans and future income requirements.

9. What happens when I die?

One advantage of planning early is that succession arrangements can already be in place.

If ownership has gradually passed to younger generations during your lifetime, the transition can often be smoother than leaving everything through your estate.

Example

A family has built investments worth £3 million inside a FIC.

Over 15 years, the parents gradually transfer growth shares to their three children while retaining voting control.

When the surviving parent dies, the company continues operating with the children already established as shareholders, which may help reduce disruption and support the family’s long-term succession objectives.

10. Are FICs expensive to run?

There are additional costs compared with holding investments personally.

These may include:

• Company accounts.
• Corporation Tax returns.
• Companies House filings.
• Legal advice.
• Ongoing tax advice.

For larger family wealth structures, these costs may be justified by the long-term planning benefits, but every case should be assessed individually.

11. Can grandchildren benefit?

Yes.

A FIC can often be structured so that future generations, including grandchildren, benefit from long-term growth.

This can make FICs particularly attractive for families looking beyond the next generation.

12. Can I change my mind later?

Sometimes, but it depends on what you want to change, as some decisions may be difficult or costly to reverse once they are in place.

For example, changing share structures or unwinding earlier planning may create tax consequences.

This is one reason why careful planning before the company is established is so important.

13. Who should avoid using a FIC?

A FIC may not be appropriate if:

• Your investments are relatively modest.
• You need unrestricted personal access to all your capital.
• You are looking for a short-term tax saving.
• The ongoing administration would outweigh the benefits.

FICs are generally better suited to long-term planning rather than short-term tax savings.

14. What are the disadvantages?

Like any planning structure, FICs have drawbacks.

These can include:

• Ongoing administration.
• Professional costs.
• Additional legal and tax complexity.
• Potential tax charges when transferring existing assets.
• The need for regular reviews as legislation changes.

So, it is important to consider the potential downsides as well as the benefits before deciding whether a FIC is right for your family.

15. How do I know if a FIC is suitable?

There is no one-size-fits-all answer.

The right solution depends on factors such as:

• The size of your estate.
• The types of assets you own.
• Your family circumstances.
• Your succession objectives.
• Your future income needs.
• Your attitude to retaining control.

A FIC is only one of several estate planning options. For some families, a trust, lifetime gifting strategy or another structure may be more appropriate.

How ETC Tax Can Help

FICs can be highly effective when they are designed around your family’s objectives rather than simply to save tax.

At ETC Tax, we help clients consider the bigger picture by reviewing their assets, family circumstances and long-term succession goals before advising on the most appropriate strategy. Where a FIC is suitable, we can advise on the structure, tax implications and ongoing planning. Where another solution may better meet your needs, we’ll explain why.

Estate planning is rarely about one product or one tax. It’s about protecting wealth, preserving family control and planning how your assets might be passed to the next generation in an effective way.

Next Steps

If you are considering a FIC or simply want to understand whether one could work for your family, please get in touch with us.  We would be happy to discuss the options with you.