When it may help, when it probably will not and the questions to answer before creating a long-term family structure.
Family Investment Companies have become a common part of intergenerational-planning discussions.
For the right family, a FIC can retain control with the founders while allowing future growth to pass to the next generation.
For the wrong family, it creates legal, tax and administrative costs without enough benefit to justify them.
A FIC is not simply another investment account. It is a company that may remain in place for decades.
The decision should therefore begin with the family objectives, the assets available, the time horizon and the simpler alternatives.
The first recommendation should always be whether to use one at all.
A Family Investment Company is a private limited company created to hold and manage family investments. The company itself is conventional. The planning sits in how it is funded, the rights attached to each share class, who controls voting decisions, who receives income, who benefits from future growth and how money will eventually leave the company. Founders may retain control through voting shares while growth shares are held by adult children or, where appropriate, a trust.
The legal drafting and valuation matter. This is not a structure to create from a generic template.
A FIC normally needs several of these conditions, not just one.
The costs need enough capital to work against. There is no universal minimum, but modest structures often struggle to justify themselves.
The main benefit usually comes from future growth over many years, not an immediate tax saving.
The family knows who the intended beneficiaries are and broadly agrees with the plan.
Pensions, ISAs and straightforward gifting should normally be considered before a FIC.
The founders do not expect to spend most of it themselves in the near future.
The family wants to move future growth while retaining a defined level of voting or investment control.
The structure is the wrong answer for many of the families it gets recommended to. If any of the following is true, the FIC conversation should pause — not because the structure is bad, but because something simpler will probably do the same job.
The simpler, cheaper wrappers may still offer more immediate value.
There may be little suitable capital available to fund the company.
Setup and running costs have less time to be recovered.
Money inside the company is not the same as personally owned cash.
Direct gifts, regular gifts from income, life cover or other structures may do the job with less administration.
A company does not solve disagreement. It can formalise it.
A FIC should earn its place against the alternatives. If the answer is unclear before the company is formed, the structure is probably premature.
A FIC can create two layers of tax. The company may pay Corporation Tax on interest, property income and realised capital gains. Many dividends received by a UK company are exempt, subject to the relevant rules. When profits are later distributed to shareholders, personal tax may also arise.
The FIC therefore does not normally win because it is the most income-tax-efficient investment wrapper.
Its case is usually based on a different combination of benefits:
The projected IHT benefit must be compared with company tax, personal tax, setup costs and decades of administration.
UK dividend income only — interest and gains differ. Numbers use 2026/27 rates: 35.75% higher rate above £500 allowance. FIC structure adds tax cost when realising gains and selling assets. Illustrative — not advice.
The mechanic that justifies the structure for many families is the way share classes can be used to retain founder control while allowing future growth to accrue to the next generation. Done well, the founders' economic interest in the company stays close to its original level and part of the future growth may sit outside their estates.
A FIC is rarely the only structure on the table. The four main alternatives sit alongside each other and the best answer may combine more than one route.
FICs are commercial entities. They incur the costs of any limited company plus the specialist advice required to keep the structure working. Each of the four cost areas matters; the decision should be based on the total cost over the intended life of the structure, not the setup quote alone.
Planning and modelling. Family objectives, IHT exposure and alternatives tested before incorporation.
Legal and tax setup. Company formation, articles, share classes, shareholder agreement, valuation and asset-transfer advice.
Asset-transfer tax and costs. Moving investments or property may trigger CGT, SDLT, legal fees, lender consent or other charges.
Ongoing administration. Accounts, tax returns, Companies House filings, investment management, valuations and periodic professional review.
A FIC that saves less than it costs has not earned its place.
James and Sarah have two adult children and significant assets outside pensions. They want to retain control, do not expect to spend the capital themselves and have a 20-year horizon. Before considering a FIC, the planning models direct gifts, regular gifts from income, trusts, Business Relief investments, life cover, and retaining the assets personally. A FIC is then modelled for part of the estate — not all of it.
Existing structures reviewed first. Pension and ISA contributions confirmed maximised. Direct gifting strategy modelled (£3k annual exemption + larger PETs). Discretionary trust modelled as alternative. AIM/BPR option explored. Each scenario IHT-modelled over 20 years.
The numbers narrow the field. Direct gifts: strong but James and Sarah want to retain control. Discretionary trust: 6% periodic charges become material over 20 years. AIM BPR: meaningful for £500k–£1m but liquidity and concentration risk above that. FIC modelled as the structure for £1.8m of GIA plus £900k of investment property — £2.7m total before costs, tax and transfer mechanics.
FIC incorporated. James and Sarah hold A-shares (voting, value-capped at the original economic value). Adult children hold B-shares (non-voting, growth). GIA and investment property transferred into the FIC — this is the step that requires the most care. The transfer of GIA holdings into the company is itself a CGT event at market value on the day of transfer: gains above each individual's annual exempt amount (£3,000 for 2026/27) are taxable at the relevant CGT rate, so the GIA leg of an incorporation needs sequencing and, where possible, staged across tax years and between spouses. The disposal of property to the company can trigger CGT, SDLT (potentially at higher residential rates), formal valuation, legal costs and lender consent on any mortgage. Where residential property is involved above £500k of value, Annual Tax on Enveloped Dwellings (ATED) filing and charge considerations also apply — reliefs may be available for genuinely commercial letting, but the position needs to be designed with a specialist tax adviser before anything is moved. None of this is automatic. Shareholders' agreement signed. First investment policy documented.
FIC manages investments. Annual accounts filed. Quarterly distributions to shareholders as appropriate. Annual review with us reviews the structure, share-class arithmetic, and whether to issue further B-shares to the children as the structure beds in.
Illustrative 20-year outcome based on the assumptions below. Actual outcomes will vary materially depending on investment returns, tax rules, costs and the specific structure adopted; the figures are not a projection or forecast. Assumptions used: 5% nominal compound growth applied to the FIC assets; corporation-tax drag on income and gains modelled at prevailing rates; running costs of around £10,000 per year over the period. On those assumptions the FIC assets would grow from £2.7m towards the £6–8m range, with growth held outside the founders' estate, and the A-share value broadly retaining its original £2.7m economic value. Cumulative running cost across the period would be in the order of £200,000. The indicative IHT position at the end of the period, if the assumptions held, would be materially better than leaving the same assets within the estate — but the actual saving depends on the family's wider estate position, the underlying growth rate, the tax rules in force at each point, and the FIC's own tax leakage. Any of those changing over 20 years will move the number. The exercise is useful to show the direction of travel; it is not a promise of a particular saving.
Illustrative scenario only — not a recommendation. Assumes 5% nominal investment growth, 2026/27 tax rules held constant, and FIC structure remaining HMRC-compliant. Real outcomes depend on future rule changes, investment returns, and individual circumstances. Not advice.
A FIC is one of the most specialist engagements I run. The financial planning sits alongside corporate law and tax advice. My role is to keep the company connected to the wider family plan. I do not replace the solicitor or specialist tax adviser.
Clarify the objectives, model the IHT position and compare the FIC with simpler alternatives.
If the case is strong, the solicitor and tax adviser design the company, share rights, valuations and asset transfers.
Agree what the company may hold, the risk level, liquidity and distribution policy.
Review accounts, tax, share rights, distributions, family changes and whether the structure remains useful.
The six green-light tests and six red-light tests on pages 04 and 05, consolidated for the conversation. Print this page. Tick what's true for your family. The pattern in the ticks usually tells you the answer before anyone runs a calculation.
Colin Bates · Chapter 3 Financial Planning
colin@chapter3fp.co.uk
chapter3fp.co.uk
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Chapter3 Financial Planning Ltd is an Appointed Representative of ValidPath Limited. ValidPath Limited is authorised and regulated by the Financial Conduct Authority under FRN 197107. Chapter3 Financial Planning Ltd appears on the FCA Register as an Appointed Representative under reference number 931195.
This guide is educational and does not constitute personal financial, tax or legal advice. FIC structuring is a specialist area combining tax, corporate law and financial planning. Tax rules and rates referenced are based on UK 2026/27 and are subject to change — HMRC scrutiny of FIC structures has fluctuated and may do so again. All figures are illustrative. Specific advice should be obtained on individual circumstances from suitably qualified specialists.