A family investment company (FIC) is a private UK company set up to hold and grow family wealth, usually with parents as directors keeping control while children or other relatives own shares. Profits are taxed at Corporation Tax rates rather than income tax rates, most dividends the company receives are exempt, and gifts of shares can fall outside the donor’s estate after seven years. Extracting money still costs dividend tax, and HMRC continues to review FICs within its wealthy taxpayer compliance work.

What is a family investment company?

A FIC is not a special legal vehicle. It is an ordinary private limited company, formed to hold investments such as shares, funds, cash or property for a family. What makes it a FIC is how it is designed: the articles of association and a shareholders’ agreement separate control from economic value. Parents typically hold voting shares and sit on the board, while children, grandchildren or trusts hold shares that carry rights to dividends and growth but little or no say in how the company is run.

Many FICs use several share classes (often called alphabet shares) so the directors can pay dividends to one class and not another.

How is a family investment company taxed?

What rate of Corporation Tax does a FIC pay?

Company profits are charged to Corporation Tax. The main rate is 25%, with a small profits rate of 19% for profits up to £50,000 and marginal relief for profits between £50,000 and £250,000. Those limits are shared between associated companies and reduced for short accounting periods. Our guide to Corporation Tax explained covers how the rates work.

There is an important catch for FICs. Most are close companies, meaning they are controlled by five or fewer participators or by their directors. A close company that exists mainly to hold investments, rather than to trade or to let land to unconnected people, is usually a close investment holding company. HMRC’s manual is clear that these companies pay the main rate and cannot use the small profits rate or marginal relief. So a FIC holding a share portfolio should generally expect 25% on its taxable profits. Read more on close company rules.

Does a FIC pay tax on dividends it receives?

Usually not. Dividends received by a UK company are generally exempt from Corporation Tax under the distribution exemption, although certain distributions (such as some interest treated as a distribution) are outside it. This is why FICs are popular for holding equity portfolios: dividend income can be reinvested inside the company with no further tax until it is paid out. Interest, rental profits and capital gains on disposals are taxable in the company in the normal way.

What tax do family members pay when money comes out?

When the FIC pays a dividend, the shareholder pays dividend tax. For 2026/27 the rates are 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate), with a £500 dividend allowance. See dividend allowance and tax rates for the bands. Combined with Corporation Tax already paid, extracting profits can be expensive, which is why FICs suit families planning to leave money invested for the long term.

Should a FIC be funded by a loan or by buying shares?

Founders commonly fund a FIC in two ways, often together:

  • Loan. The founder lends cash to the company. Repayments of the loan are a return of the founder’s own money rather than income, so they can give a steady flow of cash without dividend tax. The loan balance, however, stays in the founder’s estate for Inheritance Tax. Interest can be charged, but the timing of payment affects when the company gets relief.
  • Share subscription. The founder subscribes for shares, and some of those shares (or new shares issued to relatives) carry the future growth. Getting money back out of share capital is harder than repaying a loan.

The right mix depends on how much access the founder wants to keep and how much value they want to pass on.

How does a FIC help with Inheritance Tax?

A gift of FIC shares from one individual to another is normally a potentially exempt transfer. If the donor survives seven years, no Inheritance Tax is due on the gift. If they die sooner, the gift counts towards their estate, with taper relief reducing the tax on gifts made three to seven years before death. Growth in the value of shares already held by children also accrues outside the parents’ estates.

Two traps are worth knowing. First, if the donor keeps benefiting from what they gave away, it can be a gift with reservation and still count as part of their estate. Second, where a parent gives shares to their own minor unmarried child, dividends over £100 a year from that parent’s gifts are taxed as the parent’s income under the settlements legislation.

Is a FIC better than a trust?

Neither is better in every case. A FIC avoids the 20% lifetime Inheritance Tax charge that applies when assets above the nil rate band go into most trusts, lets founders keep control through the board, and suits long term reinvestment. A trust gives trustees wider discretion over who benefits and when, and can offer stronger protection where beneficiaries are young or vulnerable. Some families use both, with a trust holding shares in the FIC.

Is a family investment company worth it?

A FIC tends to make sense where there is a substantial sum to invest, no need to draw income soon, and a clear wish to pass growth to the next generation. The downsides include set up and legal costs, annual accounts and filings at Companies House (so company information is public), the double layer of tax on extraction, and the cost of winding the company up. Moving existing investments or property into a company can also trigger Capital Gains Tax and Stamp Duty Land Tax.

Does HMRC still look at family investment companies?

Yes. HMRC set up a dedicated FIC unit in April 2019 and disbanded it in 2021, reporting that it found no evidence that people using FICs were more likely to be non compliant. FICs are now handled as business as usual by the HMRC directorate that deals with wealthy individuals and larger businesses, and the government said it did not rule out targeted rules in future. Share valuations on gifts, the terms of founder loans, the purpose of the company and dividend waivers are all areas HMRC may question.

What happens if HMRC opens an enquiry into a FIC?

An enquiry into a FIC can reach the company’s return and the personal returns of every shareholder, and questions on share valuations or Inheritance Tax often need specialist input. The accountant’s fees for dealing with that correspondence can build up quickly, even when no extra tax is due.

Solar Protect tax investigation insurance covers up to £100,000 of accountant’s fees with no excess. You can read how the cover works on our tax investigation insurance page. When you are ready, you can get a quote for your company or your family’s personal returns.

Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.