What is a Family Investment Company (FIC)?

Key Features of a Family Investment Company

A Family Investment Company is a private limited company incorporated with the explicit purpose of holding investments on behalf of the family. The founders, usually the parents, subscribe for or inject capital into the company in exchange for shares. They often keep a separate class of voting shares that allows them to remain in control of board decisions while issuing non‑voting growth shares to children and grandchildren. This dual‑share mechanism lets future gains accrue outside the parents’ taxable estates without forcing them to relinquish strategic control. Capital can also be injected as a director’s loan. That loan may be repaid to the founders at a later date without further tax, providing a flexible, tax‑neutral way of extracting liquidity should personal circumstances change. Day‑to‑day governance mirrors any other private company: directors, frequently family members, meet to set investment policy, approve dividends, and manage disposals. Crucially, every decision remains anchored inside the family circle, preserving discretion and entrepreneurial agility.

Tax Benefits and Implications of a Family Investment Company

For ongoing growth, an FIC can be highly efficient. Investment income and capital gains realised within the company are usually charged at the main applicable corporation tax rate, rather than the higher individual income tax rates. Profits retained for reinvestment therefore compound faster. When distributions are required, dividends paid to shareholders may suffer dividend tax, but careful allocation of growth shares to younger family members in lower tax brackets can soften the blow. Inheritance Tax planning is baked into the share structure: gifting minority, non‑voting shares transfer value outside the donor’s estate, gradually shrinking the eventual inheritance or tax bill without surrendering control. Capital gains tax can arise if the company is liquidated and assets are distributed, yet the ability to rebase asset values at the company level offers planning opportunities that are unavailable to individual investors.

Advantages and Disadvantages of a Family Investment Company

The greatest advantage of an FIC is control and flexibility. Founders can pivot strategy, switch asset classes, or vary dividends almost at will, so long as the board approves. Lower corporation tax on retained profits accelerates growth, and the director’s loan mechanism offers a tax‑free pipeline for repaying capital if required. Against these benefits can be greater transparency (the company may be required to file accounts publicly), and a potential second layer of tax when profits are ultimately extracted as dividends or capital. Professional fees for incorporation, bookkeeping and statutory accounts also mean that very small portfolios may not justify the administrative overhead.

What is a Family Investment Trust (FIT)?

Key Features of a Family Investment Trust

A Family Investment Trust is not a company, but a legal relationship created when a settlor transfers assets to trustees to manage for named beneficiaries. Once transferred, the assets are no longer legally owned by the settlor; the trustees hold them under fiduciary duty, guided by the terms of the trust deed and, informally, by the settlor’s “letter of wishes”. Different trust types cater to differing objectives. A discretionary trust gives trustees full latitude to decide how and when to distribute income or capital. Interest‑in‑possession trusts guarantee a named beneficiary a right to income for life, while accumulation‑and‑maintenance trusts allow income to be rolled up until beneficiaries reach a specified age. Because ownership is split between legal and beneficial interests, trust assets are typically insulated from creditors, marital claims and other external threats in a way that direct ownership cannot be replicated.

Tax Benefits and Implications of a Family Investment Trust

Trusts are compelling for families whose principal aim is long‑term IHT mitigation and seamless succession. Transfers into a discretionary trust are immediately outside the transferor’s estate, and subject to applicable rates and values, can be tax free transfers.

Trusts may be subject to 10-year charges based on net asset value and higher rates of tax than an FIC, depending on complex factors, the location of the assets and location of the trustees and beneficiaries. Consequently, a trust is not usually chosen for income accumulation but for its superior asset‑protection and succession credentials.

Advantages and Disadvantages of a Family Investment Trust

The trust’s principal strength is its protective wrapper. Because assets sit outside the personal ownership of any individual, they are markedly harder to attack in divorce proceedings or creditor claims. Succession is also smooth: trustees continue to act without interruption on the death of the settlor, avoiding probate delays and publicity. Privacy is enhanced because the trust deed is not filed on any public register. That said, the settlor must be comfortable ceding legal control; trustees are obliged to act in the beneficiaries’ best interests, not the settlor’s. Trust income is taxed at penal rates compared with an FIC, and the potential for 10 year charges is an ongoing cost. Professional trustee fees and specialist tax compliance further increase the running costs, particularly for smaller estates.

Comparing Family Investment Companies and Family Investment Trusts

Tax Efficiency: Which Offers Greater Savings?

For families focused on compounding investment returns inside a low‑tax wrapper, the FIC’s corporation‑tax environment is usually superior. It allows profits to be rolled over without the drag of high personal or trust income tax rates. By contrast, a trust is unrivalled when the objective is to move a lump sum permanently outside the estate while still retaining a measure of influence through the trustees. The extraction phase presents different challenges: withdrawing funds from an FIC typically attracts dividend tax or capital gains tax, whereas distributions from a trust may generate exit charges. An adviser must therefore model both the accumulation and decumulation stages before recommending a structure.

Control and Flexibility: Understanding the Differences

Control sits at the heart of the FIC proposition. Founders can serve as directors, appoint or remove fellow directors, and adjust share rights as circumstances change. Decisions can be made swiftly, mirroring the entrepreneurial culture of many family businesses. In a trust, control is deliberately diluted: trustees operate under fiduciary duty, often with professional co‑trustees who inject an additional layer of prudence and bureaucracy. This separation can preserve family harmony and curb imprudent spending but is less suited to families that like to steer every investment decision personally.

Succession Planning and Estate Management

Both vehicles can serve succession, yet they do so in contrasting ways. An FIC requires share transfers, shareholder agreements and, potentially, alterations to the company’s articles to guarantee a smooth generational hand‑off. Poor drafting or interpersonal conflict can derail the process. A trust builds succession into its DNA: beneficial interests shift automatically under the terms of the deed, sidestepping probate and the public glare of the courts. Where continuity and discretion are paramount, this can be decisive.

Costs and Administrative Complexity

An FIC demands company accounts, a corporation tax return and an annual confirmation statement, paperwork familiar to most accountants. A trust, however, imposes a separate tax regime, mandatory trust‑register reporting, trustee meetings, and professional advice on periodic charges. For portfolios below a certain threshold, the additional cost of a trust can outweigh the IHT savings, whereas large estates often regard those fees as a tolerable premium for the extra protection.

Key Factors to Consider When Choosing Between an FIC and an FIT

Family Goals and Wealth Structuring Objectives

Begin by clarifying your core objectives. Are you seeking aggressive reinvestment of surplus cash, immediate IHT relief, or an orderly framework for educating younger generations about responsible stewardship? Each structure meets these goals in different ways.

Desired Level of Control and Involvement

Families who thrive on direct decision‑making and wish to retain entrepreneurial agility usually prefer an FIC. Those who value professional stewardship, insulation from day‑to‑day pressures and the discipline of an independent fiduciary often find a trust more congenial.

Long‑term Estate and Succession Planning Goals

If probate delays or the risk of contested wills keep you awake at night, the automatic continuity provided by a trust can be reassuring. If, instead, you foresee multiple liquidity events, business exits or the desire to rebalance between asset classes regularly, the FIC’s corporate structure offers the nimbleness you need.

Legal and Regulatory Considerations

Neither vehicle should be adopted without expert advice. The legal drafting of share rights, trust deeds, letters of wishes and shareholders’ agreements will determine how well the structure performs over decades. It is essential to choose advisers who understand both company and trust law so that any future amendments protect, rather than dilute, your tax position.

Making the Right Choice for Your Family’s Financial Future

Choosing between a Family Investment Company and a Family Investment Trust is rarely straightforward. It hinges on your family’s appetite for control, your timeline for transferring wealth, and your willingness to shoulder administrative complexity in exchange for tax and asset‑protection benefits. Many families ultimately deploy both vehicles, using an FIC for active investments and a trust for passive, legacy assets, illustrating that the decision is not always either‑or. The Alpha Wealth Group can provide specialist strategies that combine FIC and trust benefits. Providing the best of both worlds, mitigating their respective weaknesses. Such specialist hybrid structures are capable of completely eliminating income, capital and inheritance taxes depending on your personal circumstances and those of your potential beneficiaries.

If you would like an objective, personalised appraisal of how these structures could secure and enhance your family wealth, Alpha Wealth Group is ready to help. Although they do not give professional tax advice, they do create wealth structures and are extremely well versed in how these structures can benefit you and your family. In addition, as part of the team that creates your structure, a legal tax professional is always involved providing correct guidance and advice. As with all wealth structuring it is paramount that your structure is compliant in whatever jurisdiction this is in. 

So why not start the journey with Alpha Wealth’s professional guidance. We can work together to design a bespoke, compliant solution that puts your long‑term wealth structuring goals first. Always remembering that whatever our fees are to you, will be far exceeded by what we will save you. In some instances as much as 5-10 times the fee charge.