A Family Investment Company (FIC) is a privately held company that focuses on managing investments rather than running a trading business. What makes it unique is the ownership structure—shares are typically owned by family members or trusts set up for their benefit.

What do FICs hold?

FICs often hold investments such as cash, residential or commercial property, and shares in listed companies. They can also include loans to other family-owned companies, such as family trading entities.

Who can set up a Family Investment Company?

Anyone with liquid assets, property, or investments can set up an FIC. This often includes business owners who are already familiar with company structures and want a modern alternative to traditional family trusts.

Adding assets to a Family Investment Company

Assets can be added in several ways, depending on the type:

Cash
Often introduced through directors’ loans rather than share subscriptions.

Property and Investments
Transferred into the company, though this may trigger capital gains tax or stamp duty land tax.

How FIC shares are structured

Family Investment Company’s shares can have different classes with varying rights. For instance:

• Some classes may have enhanced voting or dividend rights.
• Other classes might only participate in capital growth.

This flexibility allows families to retain control and allocate income tax-efficiently.

Share ownership in Family Investment Company

 Using multiple share classes lets families pay different levels of dividends to various shareholders, optimizing wealth distribution.

Passing down FIC shares

Shares can be transferred through lifetime gifts or inheritance. Lifetime gifts may fall under standard inheritance and capital gains tax rules, whereas shares inherited via a Will avoid immediate capital gains tax.

Tax implications of a Family Investment Company

Inheritance Tax (IHT)
Share transfers may be subject to inheritance tax. Gifts of shares need the giver to survive 7 years for IHT exemption. FICs can, however, be structured to minimize tax on future growth, often shielding family wealth. For example, if you name yourself and your Spouse as Directors, and reserve all voting rights, but have no rights to the capital, then after seven years, the value of the money or property transferred will fall outside of your estate for inheritance tax purposes.

Capital Gains Tax (CGT)
Lifetime gifts are subject to CGT on the increase in share value, taxed at 10% or 20% depending on the income tax band. However, shares passed on death reset their value, eliminating gains from the deceased’s lifetime.

Corporate Taxation
Any profits arising from the investments are taxed at corporation tax rates, currently at 19%, rather than income or capital gains, which could save you over 25% on your taxes if set up correctly!

In addition, where the FIC holds an equity portfolio there may be no tax at all as dividend payments are often tax free from company to company. This can increase the return on the investment significantly.

Income & Dividends Tax
The initial investment in the FIC is typically made as a loan, which can be repaid from profits tax-free. However, when the loan funds have been repaid, and the shareholders draw additional funds as regular income, they will be liable for personal income tax at their marginal rate of 20, 40, or 45%. Alternatively, shareholders can be paid ad hoc dividends and pay the lower rates of dividends tax, as seen below.