Family Investment Companies: A Tax-Efficient Way to Pass Wealth to the Next Generation?

If you've built up a portfolio of investments or property and you're starting to think about passing that wealth to your children or grandchildren, you may have come across the term "family investment company" (FIC). They've grown steadily more popular over the last 15 years, and recent changes to inheritance tax reliefs have prompted more families to take a fresh look. Here's a plain-English guide to what they are, why they've caught on, and what to weigh up before setting one up.

What is a Family Investment Company?

A FIC is a private limited company set up to hold a family's investments — shares, funds, property or other assets — rather than to trade. There's no fixed legal definition, so families structure them in whatever way suits their circumstances, but most share a few common features:

• Shareholders are usually family members across two or more generations

• The company holds and manages investments rather than running a trading business

• Shares are typically split into different classes, so control and financial benefit can be separated

• Older generations often keep voting control while younger family members hold rights to income or growth

Why have they become more popular?

A few changes over the years have made FICs more attractive relative to the alternatives:

• Trusts became less tax-efficient for large lifetime gifts after 2006, when most transfers into trust became immediately chargeable to inheritance tax above the nil-rate band (currently £325,000)

• Corporation tax fell from 30% in 2006 to as low as 19% by 2023 — the main rate is now 25% on profits over £250,000, with a lower 19% rate for profits up to £50,000, but this is still often below the highest rates of personal income tax

• Restrictions on mortgage interest relief for individual landlords, phased in from 2017, pushed many property investors to look at corporate ownership instead

• Changes to Business Property Relief and Agricultural Property Relief, due to take effect from 6 April 2026, will cap 100% inheritance tax relief on qualifying business and agricultural assets at £1 million combined, with only 50% relief above that. This reduces the appeal of holding wealth in a trading company purely as an inheritance tax shelter, and is prompting some families to reconsider how they structure things

It's also worth knowing that HMRC ran a dedicated review of FIC use between 2019 and 2021 and found no link between using an FIC and non-compliant behaviour. They're now treated as business as usual — though HMRC does still pay attention to structures that appear to be doing a lot of tax work with little commercial substance behind them.

The main benefits

• Control – parents or grandparents can pass on economic value while retaining day-to-day control through voting shares

• Tax efficiency – dividends a company receives from other UK companies are usually exempt from corporation tax, and profits can build up inside the company at corporation tax rates rather than higher personal income tax rates

• Passing on wealth gradually – gifting shares, or issuing separate growth shares from the outset, lets a founder reduce the value of their own estate over time while keeping control

• More flexibility than a trust – an FIC sits outside the "relevant property" regime that applies to most trusts, so it avoids the 10-yearly and exit charges trusts can face

Is an FIC right for your family?

FICs tend to suit families with a meaningful level of investable assets who want a structured way to involve the next generation without giving up control outright — often after selling a trading business, building up a property portfolio, or simply accumulating savings and investments over time. They're less commonly used at the very top end of wealth, where bespoke family office arrangements tend to take over.

It's worth being honest that tax savings alone are rarely reason enough to set one up. Families who get the most out of an FIC usually have a genuine non-tax reason too — bringing children into managing family wealth, consolidating scattered investments, or having a framework for lifetime gifting that isn't all-or-nothing. Where that's missing, the extra cost and complexity of running a company may not be worth it.

Getting the structure right

A typical FIC has a bespoke set of articles of association and a shareholders' agreement, with different share classes covering voting control, income rights and capital growth. These documents matter — getting them wrong at the outset is expensive to unpick years down the line, so this is legal drafting best handled alongside your solicitor. Flow can advise on the tax consequences of setting up and running an FIC — corporation tax treatment, dividend extraction, and how it interacts with inheritance tax — but the legal structure itself needs a solicitor's input, and any decision to go ahead should be made alongside your wider financial and legal advisers.

If you're weighing up whether a family investment company could work for your family, get in touch for a free discovery call and we can talk through whether it fits your situation.