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Family Investment Companies (FICs) are becoming a popular alternative to traditional trusts for wealth preservation and management. They offer greater control, flexibility, and tax benefits, enabling wealthy individuals to create long-term investment strategies while keeping assets within the family. With the freezing of inheritance tax limits and rising investment taxes anticipated in 2025, FICs are increasingly regarded as a smart option for savvy wealth planning.
What Is a Family Investment Company?
A Family Investment Company is a private company created to hold and manage wealth on behalf of a family. It’s typically limited by shares, with control and economic benefits allocated across different family members.
This setup keeps ownership separate from control. It allows founders, often parents, to make decisions while their children and grandchildren benefit from the company’s growth and income.
How FICs Are Set Up
Setting up a FIC involves:
- Incorporating a company under the Companies Act
- Issuing shares with different rights (control shares, growth shares)
- Contributing funds or assets as equity or loans
- Appointing directors, typically the wealth creators or trusted advisors
FICs can be designed to limit access to capital or income until beneficiaries reach a certain age or milestone, offering long-term control over family wealth.
Key Tax Advantages of a Family Investment Company
Inheritance Tax Efficiency: Transferring shares to family members is a potentially exempt transfer. If the donor survives seven years, the value falls outside their estate—unlike trusts, which can trigger an immediate tax charge.
Lower Tax on Investment Income: While individuals may face tax rates of up to 45% on their income, FICs pay corporation tax at a rate of 25%. This means more of the investment return stays within the structure for reinvestment.
Capital Gains Tax Planning: Gains made by an FIC are subject to corporation tax, not capital gains tax. In many cases, this results in more efficient tax treatment, particularly for long-term growth assets such as shares and investment portfolios.
Tax-Free Dividends: Most dividends received by the FIC are exempt from tax. This enables the company to generate income and grow its investments without incurring immediate tax liabilities.
Deductible Expenses: Unlike individuals, a FIC can deduct management expenses, professional fees, and interest costs—further reducing its taxable profits.
How to Extract Funds from a FIC
FICs work best for long-term wealth building, but shareholders can still access funds. Common extraction methods include:
- Repayment of loans
- Dividends (taxable in the hands of the recipient)
- Salaries or director’s fees
- Liquidation of shares (capital treatment may apply)
The timing and method of extraction must be carefully planned to avoid high personal tax rates.
When FICs May Not Be Suitable
While FICs offer many advantages, they aren’t ideal for everyone. You should consider alternatives if:
- You plan to invest in residential property over £500,000 (risk of ATED charges)
- You want to benefit from personal tax reliefs like EIS or Business Property Relief
- You intend to access investment returns in the short term
- You’re managing smaller sums, where the cost and admin may outweigh the benefits
Are FICs Under HMRC Scrutiny?
FICs have gained more attention from HMRC in recent years. They are a valid structure, but their use must be based on sound business reasons and not solely for tax avoidance. To maintain a FIC that is both compliant and effective, you need to keep proper records, establish clear governance, and seek professional advice.
Is a FIC Right for Your Family?
A Family Investment Company can be a highly effective vehicle for building intergenerational wealth, provided it’s used with a long-term mindset. It offers control, flexibility, and tax efficiency—but it requires expert setup and ongoing management. For families with significant assets and a focus on legacy planning, FICs are one of the most powerful wealth planning tools available in 2025.