Should You Set Up a Family Investment Company (FIC) Instead of a Trust?
As inheritance tax (IHT) continues to affect more families and traditional trust structures face tighter regulation and tax exposure, many high-net-worth individuals are asking:
“Should I be using a Family Investment Company (FIC) instead of a trust?”
The Family Investment Company is not new — but it’s grown significantly in popularity over the past decade, particularly among UK entrepreneurs, company directors, and families with investment portfolios.
It offers a way to retain control, build wealth tax-efficiently, and pass assets to children or grandchildren without relying on trusts — which, while still valid, are increasingly scrutinised by HMRC.
In this post, we’ll explain how FICs work, how they compare to trusts, and who might benefit from using one in 2025/26.
1. What Is a Family Investment Company (FIC)?
A Family Investment Company is a private limited company set up with the specific purpose of holding and managing investments (such as shares, property, or cash).
Unlike a trading company, it doesn’t sell products or services — it simply owns investments and accumulates returns over time.
What makes it different is how it’s structured:
- Parents (or founders) usually act as directors
- Children or other family members may be shareholders — with or without voting rights
- Profits are reinvested, distributed as dividends, or retained within the company
- Over time, value can be transferred down generations while the founders maintain control
Think of it as a flexible, long-term investment vehicle with corporate tax rates and the ability to gradually hand over ownership — without the rigid legal constraints of a trust.
2. Why Use a FIC Instead of a Trust?
Trusts are still widely used, but they face challenges:
- Higher tax rates (45% income tax and 39.35% dividend tax for discretionary trusts)
- 10-year IHT charges on the value of trust assets (up to 6%)
- Increased reporting under the Trust Registration Service (TRS)
- Loss of control once assets are fully settled
- Perceived risk of future anti-avoidance legislation
FICs offer an alternative with several advantages:
| Feature | Trust | Family Investment Company |
|---|---|---|
| Income tax on dividends | 39.35% (discretionary) | 25% Corporation Tax first, then dividend tax when extracted |
| IHT protection | Yes, but limited by gifting rules | Value passed via share structure, often outside of estate if gifted early |
| Control | Often ceded to trustees | Directors retain full control |
| Reporting | Registered under TRS | Standard company accounts and confirmation statements |
| Tax transparency | Often opaque | More transparent, fewer anti-avoidance triggers |
| Flexibility | Often rigid | Highly flexible – shares, voting rights, growth shares, etc. |
3. How Is a FIC Taxed?
FICs are corporate entities, so the tax structure is based on company rules — not individual or trust rules.
A. Corporation Tax on Profits
- Investment income and gains are taxed at the Corporation Tax rate — currently 25% from April 2023 onward for most FICs
- Dividends received from most UK and overseas companies are usually exempt
- Rental income, bank interest, and gains on investments are subject to tax
B. Dividend Tax on Extraction
-
When profits are extracted as dividends, shareholders pay dividend tax personally:
- 8.75% (basic rate)
- 33.75% (higher rate)
- 39.35% (additional rate)
-
The dividend allowance in 2025/26 is just £500 per person
The combination of corporate and personal tax can be higher overall, but FICs allow you to control when tax is triggered — which is a key advantage over trusts.
C. No CGT on Internal Reinvestment
- If the FIC sells an investment and reinvests within the company, there is no personal CGT event — allowing compounding within the company
4. How Is Ownership Structured?
This is where the FIC shines: you can customise the share classes to separate control from value.
For example:
- Parents hold voting shares but no rights to capital growth
- Children hold non-voting shares that receive dividends and grow in value
- Founders retain management through director roles
- You can introduce alphabet shares, freezes, and growth shares depending on the long-term plan
This allows you to gift value to the next generation (potentially outside your estate for IHT), while still maintaining day-to-day control over investment decisions.
5. Are There Inheritance Tax (IHT) Advantages?
Yes — but they must be structured properly and early.
Key IHT planning methods with FICs:
- Gift non-voting shares to children or trusts
- Use Growth Shares: founders freeze their value; growth passes to others
- After 7 years, gifted shares fall outside the estate under Potentially Exempt Transfer (PET) rules
- Use life policies to cover IHT risk within the 7-year window
FICs do not automatically qualify for Business Relief (unlike some trading businesses), but they still allow structured gifting of value — in a way that trusts often make more complex or tax-inefficient.
6. What Can a FIC Invest In?
You can hold almost any asset, including:
- Listed shares and funds
- Private equity or angel investments
- Buy-to-let or commercial property
- Cash or bonds
- Cryptoassets (with care)
Many families use the FIC to build a multi-asset portfolio, with income and growth taxed inside the company, then extracted gradually or passed on via shares.
7. What Are the Practical Requirements?
Like any company, a FIC requires:
- Incorporation at Companies House
- Properly drafted articles of association
- Shareholder agreement (especially with family members)
- Yearly accounts and tax returns
- Possibly a management agreement or investment mandate
It’s not a DIY setup — a FIC needs careful planning between accountants, solicitors, and financial planners.
At Merranti, we lead the setup with:
- Bespoke articles and share structure
- IHT and CGT forecasting
- Dividend and salary policy
- Ongoing tax compliance
8. Who Should Consider a FIC?
FICs are most suitable for:
- Individuals or couples with excess capital (£500k+) they don’t need to live on
- Families with adult children (or trusts in place for minors)
- Business owners post-exit looking to reinvest sale proceeds
- Anyone facing a future IHT liability and wanting to retain control
- Those put off by the tax or rigidity of trusts
They are not ideal for:
- People needing regular withdrawals
- Those with only one property or minimal investments
- Anyone wanting complete hands-off management
Final Thoughts
A Family Investment Company isn’t a loophole — it’s a structured, compliant vehicle that allows long-term wealth preservation while maintaining control and flexibility.
For many families, especially those exiting businesses or building generational portfolios, a FIC offers the tax efficiency of corporate investing with the legacy benefits of strategic gifting — without the full commitment or complexity of a trust.
But it has to be designed properly from day one — with legal advice, shareholder planning, and a clear view of how wealth will be transferred over time.
Thinking about using a FIC instead of a trust?
Book a Wealth Structure Consultation with Merranti — and let’s build your strategy the right way.
