How can a family investment company help you securely plan wealth over generations?

According to Unbiased, an estimated £5.5 to £7 trillion will pass from one generation to the next over the next 30 years.

Aptly named the Great Wealth Transfer, it is set to represent one of the greatest financial shifts in history, as the majority of the UK’s wealth passes from baby boomers to millennials and Gen Z.

Most likely, you will want as much of your wealth as possible to remain in the hands of your beneficiaries.

However, the Inheritance Tax (IHT) landscape is changing:

• Pensions will no longer be valuable as IHT-free assets (April 2027).
• Frozen IHT thresholds (until 2031) are forcing estates to pay more IHT.

Read more: Inheritance Tax planning should begin at 50, not 70

There are a number of ways you could reduce the IHT due on your estate. One lesser-known answer is the family investment company (FIC).

Keep reading to learn what it is, how it can help you pass on more tax-efficient wealth, as well as key pitfalls to consider before implementing an FIC within your financial plan.

A family investment company is a corporate entity that your family can draw upon

An FIC works like any other investment company: it manages, invests, and distributes wealth. The distinction is that the fund consists of your family’s collective assets.

Just like any investment company, you can pool property, cash, equities, and many other types of assets into an FIC.

Likewise, any profits made are paid out as dividends to the FIC’s shareholders.

However, instead of public shareholders, members of your family own the company and receive shares of the profits.

FICs are powerful vehicles for family wealth preservation. They have been used for intergenerational wealth planning by many affluent families since new rules were placed on trusts in 2006 that introduced a variety of IHT restrictions.

However, they also have downsides, which we’ll come to later.

Pro: You control how your family’s wealth is invested and distributed

With the benefit of a corporate governance structure, an FIC allows you to stay in control of your family wealth.

As director, you can have a say over how the fund is managed and how wealth is invested. Likewise, you can also control how “alphabet shares” are distributed to different members of your family, corresponding to different levels of control.

For example, parents or grandparents can be given grade A shares, which provide them with voting rights.

Younger family members, like your children, grandchildren, or great-grandchildren, can own grade B shares. This means that they won’t have a say in how the FIC is controlled but will be able to benefit from growth and dividend payouts.

Pro: Family investment companies are considered tax-efficient

Wealth held in an FIC is subject to Corporation Tax. At maximum, this will charge profits over £250,000 at a rate of 25%.

To put this into perspective, the highest rate of Income Tax is 45%.

Additionally, dividends reinvested within the company are usually exempt from Corporation Tax. As investments compound, this allows you and your family to benefit from more tax-free growth.

Note that once you start withdrawing dividend income from an FIC, recipients will be subject to Dividend Tax. As of the 2026/27 tax year, individuals have access to a £500 Dividend Tax allowance, and the rate paid is aligned with their marginal rate of Income Tax.

However, the rates of Dividend Tax are lower than Income Tax.

You can also pass on IHT-free wealth in an FIC, provided it obeys HMRC’s gifting rules and is given to your beneficiaries at least seven years before you die.

Con: The risk of double taxation and substantial set-up costs

Depending on the assets held within the FIC, double taxation is a likelihood.

As mentioned previously, if an FIC controls buy-to-let property or cash assets, the profit and interest accrued from these sources will be liable for Corporation Tax.

Then, once the FIC issues its own dividends from its profits, it will be liable for Dividend Tax.

At maximum, this could equate to an effective tax rate of 54.51%. So, FICs must be overseen closely by financial professionals who can help manage their tax liability.

FICs can also cost a substantial amount to set up – MoneyWeek reports that costs can range from £15,000 to £25,000. Again, a financial planner can help you determine whether this initial cost is worth it when measured against the ongoing tax benefits of an FIC.

Con: You will be subject to corporate governance rules

As a limited company, you will need to register with Companies House. This means you will be subject to corporate governance rules.

You must regularly and accurately file annual tax returns and all other necessary documentation. Otherwise, you may be penalised.

You can outsource this responsibility to an accountant. However, this can also add further costs to set up and manage the FIC.

Get in touch with a Kellands financial planner

Whether an FIC is worthwhile depends on a number of factors, like the value of your assets and unique inheritance objectives.

At Kellands, our financial planners can help you determine whether the benefits outweigh the costs.

Alternatively, we can help you pursue other ways to achieve tax efficiency, like trusts or lifetime gifting.

Get in touch with our award-winning team today, and we can help you unpack your options.

Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, trusts, or tax planning.

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