Family Investment Company (FIC): Strategy and Structure Explained

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Family investment companies are becoming increasingly popular in the UK, particularly among families who have built up significant assets and want a structured, long term way to manage wealth, control tax exposure, and plan for future generations. I am asked about them regularly, often by business owners who have surplus cash, property portfolios, or investment income and are looking for something more flexible than a trust but more controlled than gifting assets outright.

Despite the growing interest, family investment companies are often misunderstood. They are sometimes presented online as aggressive tax schemes or one size fits all solutions. In reality, a family investment company is simply a private limited company used in a very deliberate way. When set up and run properly, it can be an effective planning tool. When used without proper understanding, it can create complexity without delivering the expected benefits.

In this article, I will explain what a family investment company is, how it works in the UK, why families use them, the tax treatment, the advantages and disadvantages, and the situations where they make sense. Everything here is based on UK practice and real world advice rather than theory.

What is a family investment company

A family investment company, often shortened to FIC, is a private limited company set up to hold and manage investments for the benefit of a family.

The company itself is not a special legal structure. It is an ordinary limited company registered with Companies House. What makes it a family investment company is how the shares are structured and how control and value are separated between family members.

Typically:

• Parents or founders retain control through voting shares

• Children or other family members hold non voting shares

• The company owns investments rather than individuals

This allows wealth to grow within the company while control remains with the founders.

Why families use investment companies

Families usually consider a family investment company for strategic reasons rather than short term tax savings.

Common motivations include:

• Long term inheritance planning

• Retaining control over family wealth

• Managing investments collectively

• Tax efficient reinvestment of profits

• Protecting assets from fragmentation

In my experience, the strongest driver is control. Many families want to pass value to the next generation without handing over decision making too early.

How a family investment company is set up

From a legal perspective, setting up a family investment company is no different to setting up any other limited company.

The company is incorporated at Companies House and has:

• Directors

• Shareholders

• Articles of association

What matters is how the shares are designed.

Often the share structure includes:

• Voting shares held by parents

• Growth shares or non voting shares held by children

• Dividend rights allocated carefully

This structure allows future growth in value to sit with the next generation while control remains with the founders.

Funding a family investment company

Once the company exists, it needs assets or cash to invest.

Common funding routes include:

• Cash introduced by parents

• Loans made to the company by family members

• Assets transferred into the company

The funding method is critical because it affects tax and flexibility later.

Cash introduced as a loan is often preferred because:

• It can be repaid tax free

• It does not dilute control

• It provides flexibility

Gifting shares instead of cash is another option but requires careful planning.

What a family investment company can invest in

A family investment company can invest in most asset classes, subject to company law and commercial considerations.

Common investments include:

• Shares and funds

• Buy to let property

• Commercial property

• Cash and bonds

• Private investments

The company can also hold investments through subsidiaries if required.

The key point is that investments sit inside the company rather than being owned personally.

How a family investment company is taxed

Tax is one of the main areas people focus on, but it needs to be understood properly.

A family investment company pays Corporation Tax on its profits. This includes:

• Rental profits

• Interest income

• Chargeable gains on disposal of assets

Corporation Tax rates are generally lower than higher and additional rate Income Tax, which is why reinvesting profits within a company can be attractive.

Tax is administered by HMRC and standard Corporation Tax rules apply.

Dividend income inside a family investment company

Dividend income received by a UK company is often exempt from Corporation Tax, although there are exceptions.

This can make investment companies attractive for holding share portfolios, as income can be reinvested without immediate tax leakage.

However, tax arises when money is eventually extracted by individuals.

Capital gains inside a family investment company

When the company sells an investment, any gain is subject to Corporation Tax.

Unlike individuals:

• There is no annual capital gains allowance

• Gains are fully taxable

• Indexation relief only applies to older periods

This is an important trade off to understand. Lower tax rates on income can be offset by less generous capital gains treatment.

Extracting money from a family investment company

Eventually, families want to access the wealth built up in the company.

Common extraction methods include:

• Repayment of director or shareholder loans

• Dividends paid to shareholders

• Salaries for work performed

Loan repayment is usually the most tax efficient where available, as it is tax free.

Dividends are taxable on the individual receiving them, based on dividend tax rates at the time.

This is where planning at the setup stage pays off later.

Inheritance tax and family investment companies

Inheritance tax planning is one of the main reasons families consider investment companies.

By gifting shares in the company, parents can:

• Reduce the value of their estate

• Pass future growth to the next generation

• Retain control through voting rights

Gifts of shares are potentially exempt transfers. If the donor survives seven years, the value falls outside their estate.

However, unlike trading companies, investment companies do not usually qualify for Business Property Relief, which is an important limitation.

Control and governance

One of the biggest advantages of a family investment company is governance.

Parents can remain directors and retain voting control, allowing them to:

• Control investment decisions

• Decide when dividends are paid

• Protect assets from immature decision making

This is often more attractive than trusts, which can feel restrictive or opaque.

How family investment companies compare to trusts

Family investment companies are often compared to trusts.

Key differences include:

• Companies are simpler to understand for many families

• Control is clearer and more flexible

• Ongoing administration is often lower

• Trust tax rates can be higher

Trusts still have a place, particularly where asset protection is the priority, but many families prefer the transparency of a company.

Costs and administration

Family investment companies are not free to run.

Ongoing costs usually include:

• Annual accounts

• Corporation Tax returns

• Companies House filings

• Accountancy and advice fees

These costs mean that family investment companies are usually only suitable where a meaningful level of assets is involved.

In my experience, they are rarely cost effective for small portfolios.

Common mistakes I see with family investment companies

The most common problems arise when people rush into a structure without clear objectives.

Typical mistakes include:

• Overcomplicated share structures

• Transferring assets without tax advice

• Assuming tax savings are guaranteed

• Ignoring exit and succession planning

A family investment company should be built around family goals, not generic tax headlines.

When a family investment company makes sense

In my view, family investment companies tend to work best where:

• There is surplus wealth to invest long term

• Parents want to retain control

• The family is comfortable with company structures

• Professional advice is taken early

They are strategic tools, not quick wins.

When a family investment company may not be suitable

They are often unsuitable where:

• Assets are modest

• Income needs to be accessed regularly

• Simplicity is the priority

• There is no clear succession plan

In these cases, personal investment or simpler structures may be more appropriate.

The importance of tailored advice

Family investment companies sit at the intersection of tax, company law, and family dynamics.

From my experience, the technical side is often easier than managing expectations and communication within the family.

Good advice covers:

• Tax implications

• Control and governance

• Long term planning

• Flexibility as circumstances change

There is no standard template that works for every family.

Final thoughts

A family investment company is not a loophole or a gimmick. It is a legitimate UK company structure used thoughtfully to manage and pass on family wealth.

When set up correctly, it can offer control, flexibility, and tax efficiency over the long term. When set up badly or for the wrong reasons, it can add cost and complexity without delivering real benefit.

In my experience, the families who benefit most are those who start with clear objectives, understand the trade offs, and view the company as part of a wider long term plan rather than a short term tax strategy.

You may also find our guidance on setting up a holding company and can my company buy property or invest in shares helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.