Setting up a family investment company (FIC) is one of the most effective ways UK families now use to protect long term wealth, manage tax exposure and pass assets to the next generation. This guide explains why families choose to setup FIC structures, the steps involved, and the practical strategies that work under the 2026/27 tax rules. Whether your goal is asset protection, a clearer tax position or a smoother inheritance plan, setting up family investment company arrangements gives you a flexible, controllable framework to build around.
Summary
- A Family Investment Company (FIC) needs a tailored structure with carefully planned share allocation and governance to manage family wealth properly.
- FICs offer tax benefits including the 19% small profits corporation tax rate where profits stay below £50,000, exemption from corporation tax on most dividend income received from other companies, and inheritance tax planning opportunities through gifting shares.
- Funding an FIC properly is essential. The choice between transferring assets, contributing cash, or using director’s loans each carries different tax and stamp duty consequences that need to be considered before incorporation.
Setting up a Family Investment Company (FIC)
When you setup FIC arrangements, you are creating a long term vehicle to hold and grow family wealth. The process begins with formal company formation at Companies House, moves through share allocation between family members, and ends with the governance and control mechanisms that match your family’s objectives.
No two families are the same, so setting up family investment company structures should always be approached on a bespoke basis rather than copying a template.
What type of FIC
A UK private limited company is the most common choice when setting up family investment company arrangements, mainly because of limited liability and the way profits are taxed. Limited liability protects the personal assets of shareholders and directors from claims against the company itself.
The corporation tax position of a limited company also makes it well suited to long term reinvestment, which is why most UK families looking to grow generational wealth choose this route when they setup FIC structures.
Share allocation to family members
Share allocation within an FIC needs careful thought because each share class can be designed to serve a different purpose. Parents often retain voting shares so they keep control of decisions, while children or grandchildren hold non voting shares that carry the right to dividends, capital growth or both.
Done well, this approach allows wealth to move down the generations gradually, without giving up day to day control too early, and without triggering unnecessary tax charges along the way.
Governance and Control
Within an FIC the founder can keep control without having to take all the economic benefit. By splitting voting rights from dividend rights, or by giving directors enhanced powers under the articles, the founder can:
- Set the long term direction of the company
- Decide which investments are made
- Decide when and how dividends are paid
- Build a governance structure that lasts across generations
A well drafted shareholders’ agreement and bespoke articles of association are usually the foundation of this control.
Tax and Benefits
FICs benefit from several tax features, including corporation tax rather than personal income tax on investment returns, an exemption from tax on most dividends received from other UK and overseas companies, and useful planning options for inheritance tax. These features mean wealth can compound inside the company without the higher personal income tax rates eating into returns each year. That said, the tax treatment when profits are extracted from the FIC matters too, and any plan needs to look at the combined position rather than the corporation tax rate in isolation.
Corporation Tax
For the financial year starting 1 April 2026, the main rate of corporation tax remains 25% for companies with profits over £250,000, while the small profits rate of 19% applies where profits are £50,000 or below. Profits between those two thresholds attract marginal relief, giving an effective rate of 26.5% on each additional pound of profit in that band. For most newly formed FICs holding a modest investment portfolio, profits often sit within the small profits rate, so 19% is the typical starting point.
It is also worth noting that the £50,000 and £250,000 thresholds are divided between associated companies under common control, so families running several companies should plan around this carefully.
Capital Gains and Dividend Income
Companies do not pay capital gains tax. Instead, chargeable gains realised by an FIC form part of its taxable profits and are taxed at the prevailing corporation tax rate, so somewhere between 19% and 25% depending on overall profit levels. That is generally lower than the 18% or 24% rates that individuals now pay on capital gains in 2026/27, especially once you factor in the £3,000 annual exempt amount that personal investors are restricted to.
Dividend income received by an FIC from other UK and overseas companies is usually exempt from corporation tax under the dividend exemption rules, which makes the FIC a tax efficient holder of equity portfolios. When those profits are eventually extracted as dividends to family shareholders, they are taxed in the recipient’s hands at the dividend rates announced in the Autumn Budget 2025, which from 6 April 2026 rise to 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate), with the £500 dividend allowance applying first.
Inheritance Tax Planning
A Family Investment Company is also a recognised way of managing exposure to inheritance tax. By gifting shares in the FIC to children or other family members, the founder can start the seven year clock running. If the founder survives seven years from the date of the gift, the value of those shares falls outside their estate for IHT purposes. With the nil rate band frozen at £325,000 and the residence nil rate band at £175,000 until April 2031, and pensions due to be brought into the IHT estate from April 2027, more families are using FIC share gifting as part of a long term IHT strategy. Note that gifts of FIC shares to individuals are Potentially Exempt Transfers, while gifts into trust may be Chargeable Lifetime Transfers with their own immediate IHT consequences, so professional advice is essential.
Fund your Family Investment Company (FIC)
An FIC needs to be funded before it can do anything. Funding can come from cash subscribed for shares, gifted assets, or loans made to the company by family members. Each route has different tax and cost implications, so the funding mechanism should be agreed before incorporation.
Cash or Non Cash Assets
Transferring cash into an FIC is straightforward. Founders typically subscribe for shares for a nominal amount and lend the balance to the company through a director’s loan, which can later be repaid tax free. Transferring non cash assets is more complicated. Moving an existing investment portfolio into the FIC is generally a disposal at market value for capital gains tax purposes, so any unrealised gains crystallise on transfer.
Transferring residential property is the area where most families are caught out. Where a company buys or has property transferred to it, SDLT applies at the higher rates plus the 5% surcharge introduced on 31 October 2024. Where the property is worth more than £500,000, the 17% flat rate for non natural persons usually applies instead, having increased from 15% on 31 October 2024. These costs are often the deciding factor in whether moving an existing property portfolio into an FIC actually makes sense.
Loan Arrangements and Interest Free Loans
Director’s loans are one of the most useful features of an FIC. Funds lent to the company by a founder can be drawn down later as loan repayments rather than as dividends or salary, and loan repayments are not taxable in the recipient’s hands. This gives the founder flexibility to take money out of the FIC over time without triggering income tax or dividend tax on each withdrawal.
If interest is charged on the loan, the FIC may be able to claim a corporation tax deduction for the interest, though the founder will then have an interest in possession charge on the personal side. Many founders choose interest free loans for simplicity.
Stamp Duty and Other Transfer Costs
Transferring non cash assets such as property or unlisted shares into an FIC can trigger SDLT or stamp duty. For residential property held personally and transferred into an FIC, the 5% surcharge or the 17% flat rate (above £500,000) is the usual position, and these charges apply to the market value rather than any nominal consideration where the company is connected to the transferor. These costs can be material and need to be factored into the decision before going ahead.
Asset Protection and Succession Planning
FICs are widely used for both asset protection and succession planning. The structure keeps wealth inside a corporate envelope that is separate from the personal affairs of any individual family member, which can help ringfence assets against personal claims, divorce settlements and creditor disputes, and at the same time gives parents and grandparents a clear way to pass wealth down the generations on terms they choose.
Structuring for Asset Protection
The Family Investment Company structure is designed so that control and economic interest can be separated. By using different classes of shares, founders can keep voting control while letting other family members take the dividends or capital growth. This is particularly useful where children are still young or where there are concerns about a future spouse or business creditor.
The articles of association can also restrict share transfers, give the directors a right of pre emption, and force the buyback of shares at fair value if a shareholder wants to leave. These provisions act as the legal walls of the structure.
Succession Planning
Succession planning through an FIC means the founder can plan the route ahead rather than leaving it to a will. Gifting growth shares to children and grandchildren early, before significant value has built up, is an efficient way to pass future appreciation outside the founder’s estate. Redeemable preference shares can be used to give parents an income stream that gradually unwinds. Combined with the seven year IHT rule and the frozen nil rate bands, this gives families a clear long term route for moving wealth down without large IHT bills.
Compliance and Reporting
FICs are full UK companies and have to meet the same compliance obligations as any other limited company. Annual accounts and a confirmation statement must be filed at Companies House, a corporation tax return (CT600) must be filed with HMRC, and the company must keep proper accounting records. These filings are part of the regulatory framework around setting up family investment company structures and should not be overlooked.
Annual Tax and Corporate Filings
A corporation tax return is due within 12 months of the end of the accounting period, with any tax payable within 9 months and one day of the period end. Annual accounts are filed at Companies House and become part of the public record, though small companies can usually file abridged accounts to reduce the level of disclosure. Some families consider an unlimited company structure where privacy is a particular concern, since unlimited companies do not have to file accounts publicly, but this comes at the cost of unlimited liability for shareholders and is rarely the right answer.
Corporation Tax Rates and Deductions
Within the FIC, allowable expenses such as professional fees, audit costs, and interest on borrowings used for investment purposes can usually be deducted in working out taxable profits. Sensible use of these deductions, together with the small profits rate of 19% where profits stay below £50,000 (or the proportionate amount where there are associated companies), can keep the effective tax rate low and free up more cash for reinvestment.
Diversifying Investments within the FIC
A Family Investment Company can hold a wide range of assets, not just listed shares. Property (subject to the SDLT considerations above), private company shares, fixed interest investments, collective investment funds and even some alternative assets can all sit inside an FIC. Diversification reduces concentration risk and gives the family more options as markets change, but every asset class has its own tax treatment that needs to be understood before it goes in.
Risk and Growth
A balanced FIC portfolio works the same way any balanced portfolio does. Too much in one asset class creates concentration risk; too much fragmentation makes the portfolio expensive to run and harder to manage. The choice of investments and the choice of share classes within the FIC should reflect the family’s actual risk appetite and time horizon, not a generic model.
Corporation Tax Relief
FICs can claim corporation tax deductions for legitimate business expenses, including bank charges, professional fees, and interest on loans used to fund investments. Claiming these deductions properly is a simple but often overlooked way of reducing the effective tax rate on FIC profits, leaving more capital available to reinvest and grow.
Conclusion
Setting up family investment company arrangements is a long term decision that should be made with proper legal, tax and financial advice. The 2026/27 rules continue to make FICs a useful tool for families who want to grow wealth inside a corporate structure, retain control while gradually passing economic benefit to the next generation, and manage their inheritance tax exposure. Done correctly, an FIC can sit at the centre of a family’s long term wealth plan for decades.
FAQs
What is a Family Investment Company (FIC)?
A Family Investment Company (FIC) is a private limited company set up to hold and grow family wealth. It allows family members to invest together, manage tax efficiently, plan for succession and protect assets, while the founders keep control over how income and capital are distributed.
How do FICs compare to personal ownership?
FICs benefit from the corporation tax rates of 19% (small profits) and 25% (main rate), with marginal relief in between, plus the dividend exemption on most dividends received from other companies. Compared with holding the same investments personally and being taxed at income tax rates of up to 45% and dividend rates of up to 39.35% (from 6 April 2026), an FIC can give a meaningful tax saving on retained profits, particularly where the income would otherwise be taxed at higher or additional rate.
Can you explain the tax difference between dividends received by an FIC and dividends paid to shareholders?
When dividends are received by an FIC from other UK or overseas companies, they are usually exempt from corporation tax under the dividend exemption rules, so the FIC can reinvest those amounts without a tax cost. When the FIC then pays dividends out to its own shareholders, those shareholders pay personal dividend tax at 10.75%, 35.75% or 39.35% depending on their marginal rate, after using the £500 dividend allowance.
What are the considerations when transferring assets to an FIC?
Transferring assets into an FIC needs to be planned carefully. Transferring shares or an investment portfolio is a disposal at market value for capital gains tax, so any built up gains crystallise. Transferring residential property to the FIC normally triggers SDLT at the higher rates plus the 5% surcharge, or the 17% flat rate where the property is worth more than £500,000. These transfer costs can be significant and should be modelled before any decision is made.
How does an FIC protect assets and plan for succession?
An FIC protects assets by keeping them inside a separate legal entity with carefully drafted articles and a shareholders’ agreement, so personal claims against any one family member do not automatically reach the FIC’s assets. For succession, parents typically retain voting control while gifting non voting growth shares to children, starting the seven year IHT clock and moving future capital appreciation outside the founder’s estate.
