Turn surplus profits into a long-term family investment.

A family investment company, or FIC, is a private company owned by family members that holds investments rather than running a trade. Alongside a trading group, it is usually used to hold cash the business doesn't need, so that it can be invested for the long term and future growth can belong to the next generation. It can sit above the group's holding company, or alongside it as a separate company owned by the family.

Only if the family investment company is a shareholder in the group. Dividends from a UK company to a company shareholder are normally exempt from corporation tax, so a FIC that owns the holding company can receive dividends without tax. If the FIC is a separate company owned by the family alongside the group, cash usually has to pass through the shareholders first as personal dividends, taxed at up to 39.35%, before being put into the FIC.

The advantage is that cash can move up from the trading group to the FIC as tax-free dividends and be invested away from the trade, with ownership of the growth shared with the family. The drawback is that the FIC's investments then sit at the top of the group, where they count in the trading tests for Business Asset Disposal Relief and can restrict inheritance tax Business Relief on the parents' shares.

Usually by a share-for-share exchange: the family investment company issues shares to the existing shareholders in exchange for their holding company shares. That can defer capital gains tax and attract stamp duty relief, but since 26 November 2025 the relief is subject to a main purpose test, and HMRC clearance is normally obtained first. The reasons for the new structure need to be genuine, documented and consistent with what then happens.

Yes, in principle. The substantial shareholding exemption looks at the company being sold and whether it is trading, not at whether the selling company trades, because that condition was removed in 2017. So the holding company can still sell a trading subsidiary free of corporation tax if the 10% and 12-month conditions are met. If the FIC itself sells the holding company, the same tests apply to the holding company's group.

Growth shares are a class of shares that only take value above a set hurdle, often the company's value when they are issued. Parents keep shares carrying the existing value and, often, the votes, while children take the growth shares at a low starting value. Future growth then builds up in the children's hands rather than the parents' estates. The share rights and the valuation at issue need careful drafting.

Alphabet shares are separate classes, such as A, B and C shares, that allow dividends to be paid on one class without the others. In a family investment company they let parents direct income to particular family members. They must be used carefully: the settlements rules can tax income on the parent who set up the arrangement, especially for minor children and for shares given to a spouse that carry little more than a right to income.

You can, but income on shares given by a parent to their own unmarried minor child is normally taxed as the parent's income if it is more than £100 a year. That is the settlements rule for minor children. Many families give shares that don't pay dividends while children are under 18, use shares that only take capital growth, or give through grandparents or a trust instead. The aim of the gift should be long-term ownership, not income splitting.

The settlements rules are income tax anti-avoidance rules. A settlement is defined very widely and includes any disposition, arrangement or transfer of assets. Where the person who made it keeps an interest, or the income goes to their minor child, the income can be taxed as theirs. The exemption for outright gifts between spouses doesn't apply where the gifted property is wholly or substantially a right to income. A FIC's share structure has to be designed around these rules.

No. Business Relief doesn't apply to shares in a company whose business is wholly or mainly making or holding investments, which is what a family investment company does. Its value is protected in a different way: by passing shares, or future growth, to the next generation early, so that the value builds up outside the parents' estates. Gifts of FIC shares to individuals are potentially exempt transfers, free of inheritance tax after seven years.

It can. If your shares are in a FIC that owns the trading group, relief depends on whether the FIC's business is wholly or mainly holding the trading group. As investments build up at the top, more value can be treated as excepted assets, and if investments become the main activity, relief on the whole shareholding can be lost. With 100% relief now capped at £2.5m per person, that balance needs watching.

A FIC pays corporation tax on interest, rent and capital gains. A FIC that mainly holds portfolio investments is usually a close investment-holding company, so it pays 25% on all its taxable profits; one that mainly holds a trading group or commercially let property can use the 19% rate and marginal relief. Dividends it receives from UK companies are normally exempt. That makes a company a natural home for share portfolios. Indexation on company gains was frozen in 2017, so gains on long-held investments are taxed in full. Tax is paid again when profits are paid out to family members as dividends.

A stand-alone FIC that mainly holds portfolio investments usually is. A close investment-holding company can't use the 19% small profits rate or marginal relief, so it pays 25% on all its taxable profits. A FIC that mainly holds shares in trading companies it controls, or commercially let property, is treated differently, because those are permitted purposes. Where the FIC sits above a trading group, its main purpose may well still be holding the group.

Usually, yes. Companies under common control are associated, and each company's 19% and 25% corporation tax thresholds are divided by the number of associated companies plus one. A FIC that holds investments carries on a business, so it counts. The narrow exception for passive holding companies only applies where the company has nothing but shares in its subsidiaries and pays out all the dividends it receives, which a FIC doesn't do.

The main routes are dividends, taxed on each family member at 10.75%, 35.75% or 39.35% after the £500 allowance, and repayment of any money the parents lent to the company, which is tax-free. Loans from the FIC to family shareholders can trigger a 35.75% corporation tax charge until repaid. Because family members pay tax at their own rates, dividends to adult children with lower incomes can be efficient, within the settlements rules.

Many parents fund a FIC with a loan rather than a gift. A loan can be repaid to them tax-free as the FIC earns income, while the children's shares take the growth on the investments. Money lent stays in the parents' estate for inheritance tax until repaid or written off. Subscribing for shares or making gifts takes value out of the estate faster but gives up access. The mix depends on what the parents need.

Yes, that is one of the main attractions. Parents can hold the voting shares and be the directors, while children hold non-voting or growth shares carrying most of the value. The articles and a shareholders' agreement can restrict transfers outside the family. But if the parents keep a benefit from shares they have given away, the gift can be treated as reserved for inheritance tax, so the design matters.

A trust can suit where the beneficiaries are young or not yet born, or where the family wants flexibility over who benefits later. Trusts pay inheritance tax charges on entry above the nil-rate band and every ten years, but Business Relief can reduce those charges for qualifying trading shares. A FIC suits long-term investment of cash with parental control and corporation tax rates. Some families use both, for example a trust holding FIC shares.