The Tax Benefits of Family Investment Companies in the UK

In today’s financial climate, tax efficiency is at the heart of any serious wealth management strategy. For families seeking to protect, grow, and ultimately pass on their assets, the Family Investment Company (FIC) has emerged as a powerful tool. While trusts once dominated estate planning, legislative changes have made FICs an increasingly attractive alternative—especially when it comes to tax planning.

Below, we explore the key tax benefits of using an FIC in the UK and why more high-net-worth families are turning to this structure.

1. Corporation Tax Advantages

FICs are subject to corporation tax rather than personal income tax. With corporation tax generally lower than the higher and additional rates of income tax, families can retain more profits within the company.

• Profits inside the company are taxed at the corporation tax rate, which is often more favourable than paying up to 45% personal income tax.

• This allows wealth to be reinvested efficiently, accelerating the growth of family assets.

2. Dividend Income Relief

Another key benefit of FICs lies in their treatment of dividend income.

• Dividends received by the FIC from UK and many overseas companies are often exempt from corporation tax.

• This makes an FIC a highly tax-efficient vehicle for managing share portfolios or investments that generate dividends.

3. Flexibility in Distributions

Unlike trusts, FICs allow for flexible distribution of income and capital through tailored share structures.

• Parents or founders can retain control via voting shares while children or other beneficiaries hold non-voting shares.

• Dividends can be paid to shareholders as required, allowing families to manage when and how individuals are taxed.

• If dividends are not distributed, profits remain in the company and continue to grow under corporation tax rates.

4. Inheritance Tax (IHT) Planning

One of the main drivers for using FICs is their role in long-term inheritance tax planning.

• Parents can transfer value to the next generation by gifting shares in the FIC, often without triggering immediate inheritance tax charges.

• Provided parents survive seven years after the gift, the shares are typically outside of their estate for IHT purposes.

• Crucially, future growth in the company’s assets accrues to the next generation rather than inflating the parents’ taxable estate.

5. Capital Gains Tax (CGT) Deferral

When assets such as property or investments are transferred into an FIC, they may be structured as a loan from the founder rather than an outright gift.

• This allows future repayments to be made tax-free, as the company simply repays the loan.

• By using this strategy, families can reduce exposure to capital gains tax on future disposals of assets.

6. Protection Against Trust Tax Charges

Trusts remain useful in certain situations, but they are now subject to more punitive tax charges. For example:

• Trusts face a 20% inheritance tax charge on transfers above the nil-rate band when assets are settled into them.

• Trust income is often taxed at the highest rates.

By contrast, FICs avoid upfront entry charges and can provide a more favourable environment for wealth to grow.

7. Greater Control Over Tax Timing

Perhaps one of the most underappreciated benefits of an FIC is the ability it gives families to control when tax is triggered.

• If profits are retained within the company, no further tax liability arises until dividends are paid.

• This allows families to align distributions with their wider tax planning strategies, ensuring tax is only paid when necessary.

Conclusion: Why FICs Are a Tax-Efficient Choice

The tax benefits of Family Investment Companies make them one of the most flexible and efficient wealth management tools available in the UK today. By combining lower rates of corporation tax, dividend exemptions, inheritance tax planning opportunities, and protection from punitive trust charges, FICs provide a modern framework for building and preserving family wealth.

For families with significant assets, an FIC can be a game-changing solution—delivering not only tax efficiency but also control, flexibility, and long-term security.

👉 At www.familyinvestmentcompanies.co.uk we connect families with leading UK tax advisers who offer a free initial consultation to explore whether an FIC is the right strategy for you.