Wealth planning guide: 2026/27

Family Investment Companies (FIC): IHT, Share Classes & When to Use

Q: What is a Family Investment Company (FIC)?

A Family Investment Company is a private UK limited company set up to hold and grow family investment assets (typically equity portfolios, bonds, cash deposits, and sometimes commercial property) across multiple generations. The founder transfers cash or assets to the FIC in exchange for shares - typically split across A, B, C, D and E classes for different family members (alphabet share structure). Investment returns roll up inside the company taxed at Corporation Tax rates (with the dividend-exempt rules for UK-source dividends under CTA 2009 section 931A often making the effective rate materially lower than the headline 19% to 25%). Family members extract income as dividends taxed at standard 8.75% / 33.75% / 39.35% personal rates. Founders typically retain voting control via A-class shares while gifting non-voting income / capital shares to children and grandchildren - achieving inter-generational wealth transfer without the 6% periodic and exit charges that hit Relevant Property Trusts under IHTA 1984 sections 64-66.

Q: Why use a FIC instead of a discretionary trust?

The Finance Act 2006 substantially changed UK trust taxation: most new discretionary and accumulation trusts became Relevant Property Trusts subject to entry charges (20% on amounts over the £325,000 Nil Rate Band), 6% periodic charges every 10 years on the excess over NRB, and exit charges on capital distributions. For families settling £2m+ of investment assets the trust route now leaks significant value to IHT every decade. FICs are not in the IHT relevant property regime because the underlying asset is the company shares (which are personal property of the shareholders) rather than property held on trust. FICs therefore avoid the 10-year periodic charge entirely. The trade-off is: founder gifts of shares to children remain Potentially Exempt Transfers with a 7-year IHT clock (death within 7 years brings the gift back into the estate with taper relief from year 3); investment income is taxed at CT inside the FIC and dividend rates on extraction; share-class design must avoid the income-stream attribution rules under ITTOIA 2005 section 624 (the settlements provisions on income).

Q: How are FIC share classes structured?

A typical FIC uses an "alphabet" share structure: A-class shares carry voting rights but no economic rights (held by founder and / or spouse); B-class shares carry voting rights and minor economic rights (commonly held by spouse or civil partner); C, D and E-class shares carry no voting rights but full economic rights (dividends and capital) and are held by children, grandchildren and family trusts. The alphabet structure gives the founder full operational control of the company (board appointments, investment decisions, dividend declarations) while allowing flexible dividend allocation between family members by class. The articles of association typically allow the board to declare different dividend amounts per class in any given year (within company law dividend rules), enabling income to be steered to whichever shareholders are at lower marginal income tax rates - although this must be designed carefully to avoid the settlements provisions of ITTOIA 2005 section 624 which can attribute the income back to the founder for tax purposes. Growth shares (where a separate class only participates in the growth above a hurdle value) are an alternative or complementary structure when the founder wants to "freeze" their existing wealth and gift only future growth.

Q: Should I fund the FIC by gift or loan?

Both routes are common and the optimal choice depends on the founder personal IHT position, expected investment returns, and need for accessible capital. Gift route: founder transfers cash or assets to the FIC for shares; gift is a Potentially Exempt Transfer (PET) with 7-year clock from gift date; if founder survives 7 years the entire gifted value (plus all subsequent growth inside the FIC) falls outside the estate for IHT; taper relief applies on the tax due from year 3. Loan route: founder lends cash to the FIC on demand at no or commercial interest, FIC issues a nominal-value share to founder, growth inside FIC accrues to children-shareholders; the loan remains an asset of the founder estate at face value, but the FIC growth has already accrued to next-generation shareholders. The loan can be written off (forgiven) later as a separate PET, starting a fresh 7-year clock at that date. The loan route is the more conservative choice for founders who want to retain access to capital and start the IHT planning gradually; the gift route is the more efficient route for founders who can commit the capital permanently and confidently expect to survive 7 years.

Q: What is the effective tax rate on income inside a FIC?

UK Corporation Tax for {yearLabel} is 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief tapering between these thresholds. However, the effective CT rate inside a typical FIC is materially lower because UK-source dividends received by the FIC are exempt from CT under Corporation Tax Act 2009 section 931A (the dividend exemption regime for small companies, or the equivalent exemption for non-small companies). A FIC running a £5m UK equity-dominated portfolio yielding 4% in dividends and 2% in capital gains might pay no CT on the dividend income at all and 19% / 25% only on the realised capital gains. Bond interest, deposit interest and foreign dividends without an applicable treaty exemption are fully taxable. A typical blended effective CT rate on total investment return for a UK-focused FIC is 15% to 25% depending on the asset mix and turnover. The dividend extraction by shareholders is then taxed at 8.75% / 33.75% / 39.35% personally with the £500 dividend allowance, but only on amounts actually extracted - rolled-up gains inside the FIC face only the corporate-level tax until extraction.

Q: Do FICs trigger the settlements provisions under ITTOIA 2005 section 624?

Potentially yes, depending on share-class design and dividend declaration patterns. ITTOIA 2005 section 624 attributes income arising from a "settlement" back to the settlor for income tax purposes if the settlor or spouse retains an interest. HMRC has consistently argued that alphabet-share structures where dividends are declared disproportionately to lower-rate-payer family members can be a "settlement" with the founder as settlor - particularly where the founder gifted the funded cash that generates the dividends. The leading case is Jones v Garnett (Arctic Systems, 2007) which held that married spouse share gifts fell within the spousal exemption to section 624 but other configurations remain at HMRC risk. The HMRC FIC Unit (operational 2019 to 2021) reviewed hundreds of FICs and concluded most were genuine wealth-planning vehicles, not abusive avoidance, and the Unit was dissolved. Practical risk mitigation: ensure share classes have genuine economic rights (not just dividend-declaration discretion), use spouse rather than children for variable dividend classes where possible, document the commercial rationale for the share structure, and seek a specialist tax counsel opinion before structuring.

Q: How much does it cost to set up and run a FIC?

Setup costs typically range £2,500 to £8,000 for a professionally drafted FIC: £1,500 to £5,000 for the tax and trust lawyer drafting the articles of association, shareholders agreement, and share class rights; £500 to £1,200 for Companies House registration and statutory book preparation; £500 to £1,500 for opening the corporate investment account and trustee bank accounts. Ongoing costs run £2,000 to £6,000 per year: £1,500 to £3,000 for accountancy (statutory accounts, CT600 corporation tax return, iXBRL filings); £200 to £500 for Companies House confirmation statement and director filings; £500 to £2,000 for investment advisor fees if the portfolio is professionally managed; £200 to £800 for annual legal review of the structure as family circumstances evolve. For a £2m FIC these costs absorb 0.1% to 0.3% of assets annually - meaningful but typically much less than the IHT and trust-charge savings on a £5m+ structure. Below £2m of settled wealth the FIC overhead often exceeds the IHT efficiency gain vs simpler planning.

Q: What happens to the FIC on the founder death?

The founder shares (typically A-class voting shares with minimal economic rights) are valued for IHT at the value of the rights they confer - usually minimal because voting control without economic entitlement carries very limited open-market value, although HMRC may argue for a control premium. Any retained C / D / E economic shares that were not gifted before death form part of the estate at market value. Founder gifts of C / D / E shares within 7 years of death are pulled back into the estate at the gifted value (not current value) with taper relief from year 3 (20% per year from years 3 to 7). The FIC continues operating after the founder death - the company is a legal person separate from any individual shareholder, and the articles of association typically vest succession control in surviving family members via spouse and adult-children directors. The next generation can continue extracting dividends, the corporation tax treatment continues at standard CT rates, and the IHT clock on each previously-gifted share class is unaffected by the founder death except for the 7-year pull-back calculation.

Q: When should I not use a FIC?

FICs are not appropriate for several common situations. (1) Below £2m of settled wealth: ongoing costs (£2,000 to £6,000 / year) and complexity usually outweigh the IHT efficiency gain vs simpler approaches like Business Relief-qualifying AIM portfolios, life assurance gift trusts, or staged annual gifting under the £3,000 annual exemption and surplus-income exemption. (2) Where the family needs income immediately: extracted dividends are taxed at 8.75% / 33.75% / 39.35% on top of the corporate-level CT, so the total combined rate on extracted profit can exceed personal direct-investment taxation - the FIC works for accumulation, not for immediate-extraction income. (3) Where Business Relief or Agricultural Relief is the main IHT mitigation route: family trading-business shares typically qualify for 100% BR / APR and need no FIC wrapper. (4) Where the family business is a trading company: FICs are investment companies and tax treatment differs - a trading company already benefits from BR and should not be conflated with a FIC. (5) Where the founder will not survive 7 years: the gifted shares fall back into the estate; the IHT efficiency of the FIC route depends on the 7-year PET clock running out. (6) Where international issues are significant: non-UK domiciled founders and non-resident shareholders face different (and often more complex) treatment - FICs are designed for UK-resident UK-domiciled families.

Q: Are FICs an HMRC target for enforcement?

HMRC set up the FIC Unit in April 2019 explicitly to review whether FICs were being used for avoidance. The Unit reviewed hundreds of FIC structures over 2019 to 2021 and in 2021 concluded that there was no evidence of widespread abusive patterns, that FICs were genuine wealth-planning vehicles, and that no specific anti-avoidance legislation was warranted. The Unit was dissolved. This is the strongest available HMRC signal that properly-structured FICs are not currently a focus of enforcement attention. However, HMRC has retained the general anti-avoidance rule (GAAR), the settlements provisions of ITTOIA 2005 section 624 (income attribution back to settlor), and the close company rules (deemed distributions, transactions in securities under ITA 2007 section 684). Specific patterns that remain at risk: dividend waivers where one shareholder waives in favour of another, artificial growth-share structures designed solely to crystallise value at zero, and undocumented family-loan arrangements at non-commercial interest. The HMRC FIC Unit conclusion does not give a blanket safe harbour - it confirms that genuine wealth-planning FICs are not under attack.

Private limited company holding family investment wealth across generations, alphabet share-class structure for flexible income allocation, gift vs loan founding route, Corporation Tax on rolled-up returns vs dividend tax on extraction, IHT mitigation vs Relevant Property Trust comparison after the Finance Act 2006 reforms, ITTOIA 2005 section 624 settlements provisions risk, and the HMRC FIC Unit 2019 to 2021 findings.

What is a Family Investment Company?

A Family Investment Company (FIC) is a private UK limited company set up specifically to hold and grow family investment assets across multiple generations. The founder transfers cash or assets to the FIC in exchange for shares - typically split across A, B, C, D and E classes for different family members in an "alphabet" share structure. Investment returns (dividends, interest, capital gains) accumulate inside the company taxed at Corporation Tax rates, with significant exemption available for UK-source dividends received by the FIC under Corporation Tax Act 2009 section 931A. Family-member shareholders extract income as dividends taxed at the standard personal rates (8.75% / 33.75% / 39.35% for 2026/27). The founder typically retains operational control via voting A-class shares while gifting non-voting income and capital shares (C, D, E classes) to children and grandchildren - achieving inter-generational wealth transfer without the 6% periodic and 20% entry IHT charges that hit Relevant Property Trusts under Inheritance Tax Act 1984 sections 64-66.

FICs grew rapidly as a wealth-planning vehicle after the Finance Act 2006 reforms substantially worsened the tax treatment of new Relevant Property Trusts (RPTs). Before 2006, life-interest and accumulation-and-maintenance trusts were a flexible and tax-efficient tool for family wealth planning. The 2006 reforms brought almost all new family trusts into the Relevant Property regime with entry charges of 20% on amounts over the £325,000 Nil Rate Band, 6% periodic charges every 10 years on excess over NRB, and exit charges on distributions. For families settling £2m+ the trust route now leaks significant value to IHT every decade. The FIC route avoids the entire RPT regime because the underlying asset (the FIC shares) is personal property of the shareholders, not property held on trust - so the 10-year periodic charge does not apply. HMRC set up a dedicated FIC Unit in April 2019 to review whether FICs were being used for avoidance, reviewed hundreds of structures, and concluded in 2021 that FICs were genuine wealth-planning vehicles with no widespread abusive patterns - the Unit was dissolved. This is the strongest available HMRC signal that properly-structured FICs are not currently a focus of enforcement attention.

FICs are not the right tool for every family. The realistic minimum threshold for cost-justified FIC planning is around £2m to £3m of settled wealth: below that, ongoing costs (£2,000 to £6,000 / year) and complexity usually outweigh the IHT efficiency gain vs simpler approaches like Business Relief-qualifying AIM portfolios, life assurance gift trusts, or staged annual gifting under the £3,000 annual exemption plus surplus-income exemption. The FIC works for accumulation and inter-generational gifting; it is less efficient than direct personal investment if the family will extract income annually. And FICs assume the founder will survive 7 years from the gifting of shares - if survival is uncertain, gifted shares fall back into the estate with taper relief from year 3. Specialist tax-counsel advice is essential before structuring a FIC - the share-class design must navigate the ITTOIA 2005 section 624 settlements provisions, the Companies Act dividend rules, the close-company rules, and the General Anti-Abuse Rule.

The defining design feature of a FIC is the alphabet share class structure that separates voting control from economic rights and allows flexible inter-class dividend allocation. A typical structure:

A-class shares - voting rights, no economic rights. Held by founder. Carries the board appointment power, dividend declaration vote, and strategic control over investment policy. Because A-class shares have no economic entitlement, their open-market value for IHT purposes is minimal (although HMRC may argue for a control premium).
B-class shares - voting rights, minor economic rights. Commonly held by spouse or civil partner. Allows joint control while accommodating the spousal exemption to ITTOIA 2005 section 624 (the settlements provisions on income).
C-class shares - no voting rights, dividend and capital rights. Held by adult children. Issued at incorporation or gifted shortly after, starting the 7-year IHT Potentially Exempt Transfer clock.
D-class shares - no voting rights, dividend and capital rights. Held by grandchildren or minor children (potentially via a bare trust where minor children are involved - bare trusts give the child a full beneficial interest with parents holding only as legal trustees).
E-class shares - flexibility class for spouse income smoothing, future family additions or specific dividend-allocation purposes. Sometimes held by a separate small discretionary trust set up for IHT-protected family additions.

The economic flexibility comes from the articles of association allowing the board to declare different dividend amounts per class in any given year (within Companies Act dividend rules - distributions must be made from accumulated realised profits). For example: in a year when an adult child holding C-class shares is in the basic rate band (paying 8.75% dividend tax), the board might declare a higher dividend on C-class than on D-class shares held by a grandchild with no other income. The next year, when the C-class holder has moved up to the higher rate band (33.75% dividend tax), the board might shift more dividend to the D-class holder. This dividend-class flexibility is the principal economic advantage of the FIC structure - but it is also the principal target of HMRC settlements-provisions argument. ITTOIA 2005 section 624 attributes income arising from a "settlement" back to the settlor for income tax purposes if the settlor or spouse retains an interest, and HMRC has consistently argued that pure-dividend-discretion alphabet structures can be a "settlement" with the founder as settlor. The leading case is Jones v Garnett (Arctic Systems, 2007) which held that married-spouse share gifts fell within the spousal exemption but other configurations remain at HMRC risk.

Practical risk mitigation in alphabet design: ensure each share class has genuine economic rights (not just dividend-declaration discretion) - for example, each class might have a fixed minimum participation in distributions of capital on a winding-up. Use spouse / civil partner classes for variable dividend allocation where possible (spousal exemption applies). Document the commercial rationale for the share structure (e.g. "C-class for adult-children family income contribution; D-class for grandchildren education funding; A-class for founder control of investment strategy"). Avoid dividend waivers (where one shareholder waives a dividend in favour of another) - these are explicit HMRC anti-avoidance triggers and create transactions-in-securities risk under ITA 2007 section 684. Obtain a specialist tax-counsel opinion on the specific structure before incorporation. A FIC structured carefully under these constraints has generally withstood HMRC scrutiny based on the 2019 to 2021 FIC Unit findings.

Founding route - gift vs loan

Two common patterns exist for funding the FIC: outright gift of cash or assets to the company for shares, or loan of cash to the company at no or commercial interest. The choice has significant IHT and operational consequences.

Gift route

The founder transfers cash or assets to the FIC in exchange for shares (or for the FIC to issue shares to family-member subscribers). The transfer is a Potentially Exempt Transfer (PET) with a 7-year IHT clock from the gift date. If the founder survives 7 years the entire gifted value (plus all subsequent growth inside the FIC) falls outside the estate for IHT purposes. Taper relief on the IHT due applies from year 3: 20% taper at year 3-4, 40% at year 4-5, 60% at year 5-6, 80% at year 6-7. The gift route is the most efficient outcome but requires the founder to commit the capital permanently - they cannot reclaim it from the FIC without the FIC declaring a dividend (which is taxed at standard dividend rates on the founder if they hold dividend-entitled shares).

Loan route

The founder lends cash to the FIC on demand at no interest (or at the HMRC official rate of interest to avoid benefit-in-kind treatment), and the FIC issues a nominal-value subscriber share to the founder. Growth inside the FIC accrues to the children-shareholder classes (C / D / E) as that is where dividend and capital entitlement sits. The loan remains an asset of the founder estate at face value (it does not appreciate or depreciate with FIC performance), and is repayable on demand or per the loan agreement. The founder can write off the loan (forgive it) later as a separate PET, starting a fresh 7-year clock at that date. The loan route is more conservative: the founder retains access to the lent capital (can call the loan if needed for personal cash flow), and the IHT planning is staged through repeated partial loan write-offs over time. It is the natural first step for founders who want to commit gradually to the FIC structure or who are uncertain about their long-term cash-flow needs.

The two routes can be combined. A common pattern: founder lends £5m to a new FIC on commercial terms, the FIC issues C / D / E shares to children and grandchildren for their nominal subscription price, the FIC invests the loaned cash and growth accrues to the children-shareholders. After 3 to 5 years (once the founder is confident in the structure and the family dynamics), the founder writes off £325,000 of the loan per year under the annual Nil Rate Band PET window or in a single larger written-off PET, starting the 7-year clock on each write-off. Over a 10 to 15 year horizon the entire loan can be written off, putting the entire FIC value outside the founder estate while the founder retained access to the loan as a fallback throughout the early years.

Tax treatment - Corporation Tax inside, dividend tax on extraction

A FIC pays Corporation Tax on its taxable profits at the standard CT rates: 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief tapering between these thresholds for 2026/27. The marginal relief effective rate between £50,000 and £250,000 of profit works out at 26.5% on the slice in that band. However, the effective CT rate inside a typical investment-focused FIC is materially lower than the headline because of three structural exemptions:

UK-source dividends received by the FIC are exempt from Corporation Tax under Corporation Tax Act 2009 section 931A (the small company exemption) or section 931B (the non-small company exemption that applies to most FICs once they hold a portfolio). A FIC running a UK-equity-dominated portfolio yielding 4% in dividends might pay no CT on the dividend income at all.
Most foreign dividends received from companies in jurisdictions with which the UK has a double-tax treaty also qualify for the dividend exemption regime, although the analysis is more detailed and turns on the underlying corporate structure of the source jurisdiction.
Capital gains are taxed at standard CT rates (19% to 25%) inside the FIC on realised gains. The Substantial Shareholding Exemption (TCGA 1992 schedule 7AC) does not typically apply because the FIC holds small portfolio stakes rather than substantial trading-company holdings, but ordinary share-portfolio capital gains face CT at 19% to 25% which is materially lower than the 24% individual CGT rate on residential property or 24% on other gains for 2026/27 after the recent budget reforms.

A typical blended effective CT rate on total investment return for a UK-equity-focused FIC is 15% to 25% depending on the asset mix and turnover. Compare this with a Relevant Property Trust facing the trust rate of 45% on ordinary income and 39.35% on dividend income (with only a small £500 trust standard rate band of basic-rate treatment from 6 April 2024 onwards, down from the previous £1,000) and 24% CGT on gains - the FIC tax efficiency on rolled-up returns is materially better, particularly for accumulating-style portfolios where gains roll up without realisation.

The personal-level dividend tax bites only when shareholders actually extract income. Dividend tax for 2026/27 is 8.75% basic / 33.75% higher / 39.35% additional rate on dividends above the £500 dividend allowance. A C-class shareholder in the basic rate band receiving £30,000 of FIC dividends pays around £2,580 of dividend tax (8.75% on £29,500 after allowance). The combined tax wedge (CT on accumulation + dividend tax on extraction) is around 25% to 35% for a basic-rate-band shareholder extracting from a UK-equity FIC - meaningfully lower than the comparable trust or direct-investment route for higher-net-worth families. The mathematical advantage of the FIC route diminishes for shareholders in the higher and additional rate bands, where the combined wedge can approach 50%; this is the structural reason FICs work best when the family income is steered to lower-rate-band shareholders (children and grandchildren in the early years of their working lives, or spouses with lower marginal rates).

Worked example - £5m settled wealth over 20 years

A founder with £5.0m of surplus investment wealth settles it via FIC vs Relevant Property Trust. Both routes assume the same 6% gross investment yield and 20-year horizon. Both routes assume the founder has used their £325,000 Nil Rate Band on prior planning, so the entire £5m is over the NRB for trust purposes.

FIC route

Founder gifts £5.0m to FIC for shares (PET, 7-year clock from gift date). FIC invests at 6% gross yield with blended effective CT of 22.5% on the return, giving net yield of 4.65%. Compound growth for 20 years.

Period	Value	Notes
Year 0 (gift)	£5,000,000	Cash gift to FIC; PET 7-year IHT clock starts. No entry charge.
Year 7 (PET clears)	£6,872,973	Gift falls outside estate if founder survives. No 10-year periodic charge applies.
Year 20 (FIC value)	£12,409,511	Total uplift over 20 years: £7,409,511 (148% total return).

Relevant Property Trust route

Founder settles £5.0m into discretionary trust. Entry charge of 20% on excess over Nil Rate Band: ££935,000 payable on settlement. Trust invests at 6% gross yield with blended effective trust tax of 39% (income tax 45%, CGT 24% on gains), giving net yield of 3.66%. 6% periodic charge every 10 years on excess over NRB.

Period	Value	Notes
Year 0 (settlement)	£4,065,000	After 20% entry charge of £935,000 on excess over NRB £325,000.
Year 10 (periodic charge)	£5,493,445	After 6% periodic charge of £329,901 on excess over NRB.
Year 20 (after 2nd periodic)	£7,416,995	After 2nd 6% periodic charge of £452,681. Total uplift over 20 years: £2,416,995 (48% total return).

20-year delta: FIC outperforms by £4,992,515 (67% more end value). The FIC advantage comes from three sources: (1) no 20% entry charge at settlement, (2) lower effective tax rate on rolled-up investment returns inside the company vs the trust, and (3) absence of the 6% periodic charge every 10 years. The trade-off is that the founder must commit the capital to the FIC permanently (gift route) or maintain a loan arrangement, and family-member shareholders pay personal dividend tax on extracted income. The figures above are illustrative and assume constant tax rates over 20 years - in practice CT rates, dividend rates, trust tax rates and NRB thresholds change with successive Finance Acts. Specific advice should be sought before structuring.

When to use a FIC and when not to

The FIC structure is most efficient for families settling £2m to £10m+ of surplus investment wealth where the founder has surplus capital that is genuinely committed for inter-generational transfer (not needed for personal cash flow), the founder is confident in surviving 7 years (or willing to accept the partial-pull-back risk under taper relief), and the family wealth is in liquid investment assets (equities, bonds, funds, sometimes commercial property) rather than active trading businesses. The 6% periodic charge on equivalent Relevant Property Trusts of this size is the structural driver of the FIC advantage.

The FIC is not appropriate where the family has <£2m of settled wealth (ongoing FIC costs eat the IHT efficiency gain), where the family needs income immediately (combined CT + dividend tax wedge can exceed direct personal investment taxation), where Business Relief is the main IHT mitigation route (trading-business shares qualify for 100% BR without a FIC wrapper), where the founder will not survive 7 years (gifted shares fall back into the estate), where international issues are significant (non-UK domiciled founders and non-resident shareholders face more complex treatment), or where the wealth is in residential property used by the family (the Annual Tax on Enveloped Dwellings and the 15% SDLT surcharge make corporate envelopes for connected-person residential property prohibitively expensive).

Practical setup - cost, advisor selection, ongoing admin

Setting up a FIC requires three specialist professionals: a tax and trust solicitor (drafting the articles of association, shareholders agreement, and share class rights), an accountant familiar with close-company and investment-company taxation (CT600 statutory accounts, iXBRL filings, dividend administration), and an investment advisor where the portfolio is professionally managed. Setup costs typically range £2,500 to £8,000 for a professionally drafted FIC: £1,500 to £5,000 for legal drafting, £500 to £1,200 for Companies House and statutory book preparation, £500 to £1,500 for the initial investment account setup and trustee banking arrangements.

Ongoing costs run £2,000 to £6,000 per year: £1,500 to £3,000 for accountancy (statutory accounts, CT600 filing, iXBRL accounts), £200 to £500 for Companies House confirmation statement and director filings, £500 to £2,000 for investment advisor fees if the portfolio is professionally managed, £200 to £800 for annual legal review of the structure as family circumstances evolve. For a £2m FIC these costs absorb 0.1% to 0.3% of assets annually; for a £5m FIC they typically run 0.05% to 0.12%. The break-even point against a personal direct-investment route is typically £1.5m to £2m of settled wealth where the IHT efficiency exceeds the ongoing cost overhead. Use the corporation tax calculator for FIC profit-level CT projections and the inheritance tax calculator for personal-estate IHT projections.

Risk and common pitfalls

Several anti-avoidance regimes apply to FICs and the share-class design must navigate each. Settlements provisions (ITTOIA 2005 section 624) attribute income arising from a settlement back to the settlor for income tax purposes - HMRC has consistently argued that pure-dividend-discretion alphabet structures can be a settlement with the founder as settlor. Mitigation: ensure each share class has genuine economic rights, use spouse classes for variable dividend allocation where possible, document commercial rationale. Close company rules apply because FICs are typically close companies controlled by 5 or fewer participators: deemed loans to participators trigger section 455 tax at 33.75% on outstanding balances over 9 months after year end (refundable when the loan is repaid), and transactions in securities (ITA 2007 section 684) can recharacterise certain share-restructuring transactions as income receipts.

Gift with reservation of benefit (FA 1986 section 102) applies if the founder gifts shares but retains a benefit from them - e.g. if the founder retains A-class voting shares but is also a discretionary beneficiary or receives ongoing personal-use benefit from FIC-held assets. The reservation triggers the IHT pull-back even if the 7-year PET clock has expired. Pre-owned assets income tax charge (FA 2004 schedule 15) can apply to chattels and land previously owned by the founder and now held by the FIC if the founder uses the asset - relevant to FICs that hold artworks, classic cars or holiday homes for family use. Diverted profits and General Anti-Abuse Rule (FA 2013 part 5) are residual sweep-up rules that HMRC can deploy against artificial schemes; properly-structured FICs based on the HMRC FIC Unit findings are not at GAAR risk but exotic variants are. Dividend waivers (one shareholder waives a dividend in favour of another) are an explicit HMRC anti-avoidance trigger and should be avoided entirely in FIC structures.

Frequently asked questions

What is a Family Investment Company (FIC)?

A Family Investment Company is a private UK limited company set up to hold and grow family investment assets (typically equity portfolios, bonds, cash deposits, and sometimes commercial property) across multiple generations. The founder transfers cash or assets to the FIC in exchange for shares - typically split across A, B, C, D and E classes for different family members (alphabet share structure). Investment returns roll up inside the company taxed at Corporation Tax rates (with the dividend-exempt rules for UK-source dividends under CTA 2009 section 931A often making the effective rate materially lower than the headline 19% to 25%). Family members extract income as dividends taxed at standard 8.75% / 33.75% / 39.35% personal rates. Founders typically retain voting control via A-class shares while gifting non-voting income / capital shares to children and grandchildren - achieving inter-generational wealth transfer without the 6% periodic and exit charges that hit Relevant Property Trusts under IHTA 1984 sections 64-66.

Why use a FIC instead of a discretionary trust?

The Finance Act 2006 substantially changed UK trust taxation: most new discretionary and accumulation trusts became Relevant Property Trusts subject to entry charges (20% on amounts over the £325,000 Nil Rate Band), 6% periodic charges every 10 years on the excess over NRB, and exit charges on capital distributions. For families settling £2m+ of investment assets the trust route now leaks significant value to IHT every decade. FICs are not in the IHT relevant property regime because the underlying asset is the company shares (which are personal property of the shareholders) rather than property held on trust. FICs therefore avoid the 10-year periodic charge entirely. The trade-off is: founder gifts of shares to children remain Potentially Exempt Transfers with a 7-year IHT clock (death within 7 years brings the gift back into the estate with taper relief from year 3); investment income is taxed at CT inside the FIC and dividend rates on extraction; share-class design must avoid the income-stream attribution rules under ITTOIA 2005 section 624 (the settlements provisions on income).

How are FIC share classes structured?

A typical FIC uses an "alphabet" share structure: A-class shares carry voting rights but no economic rights (held by founder and / or spouse); B-class shares carry voting rights and minor economic rights (commonly held by spouse or civil partner); C, D and E-class shares carry no voting rights but full economic rights (dividends and capital) and are held by children, grandchildren and family trusts. The alphabet structure gives the founder full operational control of the company (board appointments, investment decisions, dividend declarations) while allowing flexible dividend allocation between family members by class. The articles of association typically allow the board to declare different dividend amounts per class in any given year (within company law dividend rules), enabling income to be steered to whichever shareholders are at lower marginal income tax rates - although this must be designed carefully to avoid the settlements provisions of ITTOIA 2005 section 624 which can attribute the income back to the founder for tax purposes. Growth shares (where a separate class only participates in the growth above a hurdle value) are an alternative or complementary structure when the founder wants to "freeze" their existing wealth and gift only future growth.

Should I fund the FIC by gift or loan?

Both routes are common and the optimal choice depends on the founder personal IHT position, expected investment returns, and need for accessible capital. Gift route: founder transfers cash or assets to the FIC for shares; gift is a Potentially Exempt Transfer (PET) with 7-year clock from gift date; if founder survives 7 years the entire gifted value (plus all subsequent growth inside the FIC) falls outside the estate for IHT; taper relief applies on the tax due from year 3. Loan route: founder lends cash to the FIC on demand at no or commercial interest, FIC issues a nominal-value share to founder, growth inside FIC accrues to children-shareholders; the loan remains an asset of the founder estate at face value, but the FIC growth has already accrued to next-generation shareholders. The loan can be written off (forgiven) later as a separate PET, starting a fresh 7-year clock at that date. The loan route is the more conservative choice for founders who want to retain access to capital and start the IHT planning gradually; the gift route is the more efficient route for founders who can commit the capital permanently and confidently expect to survive 7 years.

What is the effective tax rate on income inside a FIC?

UK Corporation Tax for {yearLabel} is 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief tapering between these thresholds. However, the effective CT rate inside a typical FIC is materially lower because UK-source dividends received by the FIC are exempt from CT under Corporation Tax Act 2009 section 931A (the dividend exemption regime for small companies, or the equivalent exemption for non-small companies). A FIC running a £5m UK equity-dominated portfolio yielding 4% in dividends and 2% in capital gains might pay no CT on the dividend income at all and 19% / 25% only on the realised capital gains. Bond interest, deposit interest and foreign dividends without an applicable treaty exemption are fully taxable. A typical blended effective CT rate on total investment return for a UK-focused FIC is 15% to 25% depending on the asset mix and turnover. The dividend extraction by shareholders is then taxed at 8.75% / 33.75% / 39.35% personally with the £500 dividend allowance, but only on amounts actually extracted - rolled-up gains inside the FIC face only the corporate-level tax until extraction.

Do FICs trigger the settlements provisions under ITTOIA 2005 section 624?

Potentially yes, depending on share-class design and dividend declaration patterns. ITTOIA 2005 section 624 attributes income arising from a "settlement" back to the settlor for income tax purposes if the settlor or spouse retains an interest. HMRC has consistently argued that alphabet-share structures where dividends are declared disproportionately to lower-rate-payer family members can be a "settlement" with the founder as settlor - particularly where the founder gifted the funded cash that generates the dividends. The leading case is Jones v Garnett (Arctic Systems, 2007) which held that married spouse share gifts fell within the spousal exemption to section 624 but other configurations remain at HMRC risk. The HMRC FIC Unit (operational 2019 to 2021) reviewed hundreds of FICs and concluded most were genuine wealth-planning vehicles, not abusive avoidance, and the Unit was dissolved. Practical risk mitigation: ensure share classes have genuine economic rights (not just dividend-declaration discretion), use spouse rather than children for variable dividend classes where possible, document the commercial rationale for the share structure, and seek a specialist tax counsel opinion before structuring.

How much does it cost to set up and run a FIC?

Setup costs typically range £2,500 to £8,000 for a professionally drafted FIC: £1,500 to £5,000 for the tax and trust lawyer drafting the articles of association, shareholders agreement, and share class rights; £500 to £1,200 for Companies House registration and statutory book preparation; £500 to £1,500 for opening the corporate investment account and trustee bank accounts. Ongoing costs run £2,000 to £6,000 per year: £1,500 to £3,000 for accountancy (statutory accounts, CT600 corporation tax return, iXBRL filings); £200 to £500 for Companies House confirmation statement and director filings; £500 to £2,000 for investment advisor fees if the portfolio is professionally managed; £200 to £800 for annual legal review of the structure as family circumstances evolve. For a £2m FIC these costs absorb 0.1% to 0.3% of assets annually - meaningful but typically much less than the IHT and trust-charge savings on a £5m+ structure. Below £2m of settled wealth the FIC overhead often exceeds the IHT efficiency gain vs simpler planning.

What happens to the FIC on the founder death?

The founder shares (typically A-class voting shares with minimal economic rights) are valued for IHT at the value of the rights they confer - usually minimal because voting control without economic entitlement carries very limited open-market value, although HMRC may argue for a control premium. Any retained C / D / E economic shares that were not gifted before death form part of the estate at market value. Founder gifts of C / D / E shares within 7 years of death are pulled back into the estate at the gifted value (not current value) with taper relief from year 3 (20% per year from years 3 to 7). The FIC continues operating after the founder death - the company is a legal person separate from any individual shareholder, and the articles of association typically vest succession control in surviving family members via spouse and adult-children directors. The next generation can continue extracting dividends, the corporation tax treatment continues at standard CT rates, and the IHT clock on each previously-gifted share class is unaffected by the founder death except for the 7-year pull-back calculation.

When should I not use a FIC?

FICs are not appropriate for several common situations. (1) Below £2m of settled wealth: ongoing costs (£2,000 to £6,000 / year) and complexity usually outweigh the IHT efficiency gain vs simpler approaches like Business Relief-qualifying AIM portfolios, life assurance gift trusts, or staged annual gifting under the £3,000 annual exemption and surplus-income exemption. (2) Where the family needs income immediately: extracted dividends are taxed at 8.75% / 33.75% / 39.35% on top of the corporate-level CT, so the total combined rate on extracted profit can exceed personal direct-investment taxation - the FIC works for accumulation, not for immediate-extraction income. (3) Where Business Relief or Agricultural Relief is the main IHT mitigation route: family trading-business shares typically qualify for 100% BR / APR and need no FIC wrapper. (4) Where the family business is a trading company: FICs are investment companies and tax treatment differs - a trading company already benefits from BR and should not be conflated with a FIC. (5) Where the founder will not survive 7 years: the gifted shares fall back into the estate; the IHT efficiency of the FIC route depends on the 7-year PET clock running out. (6) Where international issues are significant: non-UK domiciled founders and non-resident shareholders face different (and often more complex) treatment - FICs are designed for UK-resident UK-domiciled families.

Are FICs an HMRC target for enforcement?

HMRC set up the FIC Unit in April 2019 explicitly to review whether FICs were being used for avoidance. The Unit reviewed hundreds of FIC structures over 2019 to 2021 and in 2021 concluded that there was no evidence of widespread abusive patterns, that FICs were genuine wealth-planning vehicles, and that no specific anti-avoidance legislation was warranted. The Unit was dissolved. This is the strongest available HMRC signal that properly-structured FICs are not currently a focus of enforcement attention. However, HMRC has retained the general anti-avoidance rule (GAAR), the settlements provisions of ITTOIA 2005 section 624 (income attribution back to settlor), and the close company rules (deemed distributions, transactions in securities under ITA 2007 section 684). Specific patterns that remain at risk: dividend waivers where one shareholder waives in favour of another, artificial growth-share structures designed solely to crystallise value at zero, and undocumented family-loan arrangements at non-commercial interest. The HMRC FIC Unit conclusion does not give a blanket safe harbour - it confirms that genuine wealth-planning FICs are not under attack.

Can a FIC hold residential property?

Technically yes, but typically not advisable. A FIC holding UK residential property used by an individual connected to the company (founder, family member) triggers the Annual Tax on Enveloped Dwellings (ATED) at £4,400 to £287,500+ per year depending on property value, plus the 15% SDLT surcharge on acquisition (vs 5% to 12% for individuals), plus the non-resident or higher-rate SDLT supplements where relevant. ATED is designed exactly to discourage corporate envelopes for residential property used by connected persons, and the financial penalty is severe. A FIC can hold residential property let to unconnected third-party tenants under the ATED relief for property rental businesses, but corporate landlords face the section 24 mortgage interest restriction (mortgage interest is fully deductible against Corporation Tax inside a company, whereas individual landlords have it restricted to a 20% basic-rate tax credit - this is the structural reason many private landlords incorporate). Commercial property is much more FIC-friendly and is a common asset class held inside FICs, particularly office, industrial and retail premises let to unconnected commercial tenants. Most FIC structures focus on liquid investment portfolios (equities, bonds, funds) rather than direct property holdings, which materially simplifies the tax position.

How does a FIC interact with Business Relief and other IHT reliefs?

Business Relief (BR) under IHTA 1984 sections 103-114 gives 100% IHT relief on qualifying trading-business shares and 50% on certain controlling-interest shareholdings - but a FIC is an investment company, not a trading company, so the founder shares in a FIC do not qualify for BR. This is a significant practical issue because it means the founder retained shares in the FIC are not removed from the estate by BR - the IHT efficiency of the FIC route comes from gifting shares to children (PET, 7-year clock) and the absence of trust 10-year periodic charges, not from BR. Families with both a trading business and surplus investment wealth often run two parallel structures: the trading business holds shares qualifying for 100% BR (kept simple and clearly trading), and the surplus investment wealth sits in a FIC for inter-generational gifting. Mixing them - putting investment assets into the trading business - risks losing BR on the entire structure if the investment assets exceed approximately 50% of the company assets (the "wholly or mainly trading" test). For inheritance tax mitigation alongside FIC planning see our <a class="underline" href="/inheritance-tax-calculator">inheritance tax calculator</a> and the gift taper article.

Inheritance tax calculator - personal-estate IHT projection with Nil Rate Band, Residence Nil Rate Band taper and gift taper relief.
IHT gift taper calculator - 7-year PET clock and year-3-to-7 taper relief modelling.
Corporation tax calculator - FIC profit-level CT with marginal relief between £50,000 and £250,000.
Dividend calculator - shareholder personal dividend tax extraction modelling at 8.75% / 33.75% / 39.35%.
Salary vs dividend calculator - director extraction route comparison.
Capital gains tax calculator - personal CGT for comparison vs FIC CT on gains.