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In the current climate, passing wealth to younger generations is becoming more difficult as the government continues to introduce new legislation around Inheritance Tax (IHT). And, in the upcoming Budget, the chancellor could place further restrictions on traditional lifetime gifting.
A family investment company (FIC) may help you manage your wealth more effectively and reduce future tax liabilities. Nevertheless, there are challenges to consider.
Family investment companies are often used to safeguard intergenerational wealth
A FIC is a private limited company established to manage your family’s collective wealth. You can transfer wealth and non-cash assets into the company, and family members can hold shares.
Different classes of shares, often called “alphabet shares”, can be issued to members of the family, depending on the kind of access you want to offer.
Parents might have A-shares, giving them voting rights in the company. Meanwhile, children may have B-shares, which remove voting rights but could pay dividends.
Transferring wealth in this way, rather than gifting large cash lump sums or significant assets, provides a control mechanism for the wealth that your children have access to and how and when they can use it.
A FIC helps protect your legacy, as you can create rules to restrict the sale of shares to anyone outside of the family. There is also a clear separation between personal and family wealth.
Tax efficiency is key
Any profits generated by the company are subject to Corporation Tax rather than Income Tax.
In 2025/26, the highest rate of Corporation Tax – paid by companies with profits that exceed £250,000 – is 25%. The highest rate of Income Tax is 45%.
Additionally, dividends paid into the FIC from investments held by the company are typically free from Corporation Tax. Beneficiaries can also take advantage of their £500 tax-free Dividend Allowance (2025/26) when drawing income from shares. The rate of Dividend Tax is also lower than that of Income Tax, with the highest rate standing at 39.35% (2025/26).
If you transfer assets into the company and your children later extract value in the form of dividends, there is normally no Inheritance Tax (IHT) to pay on these funds.
Additionally, you can gift shares, and if you survive for seven years after making the gift, it is considered IHT-free. When gifting wealth through a FIC, there is no immediate IHT charge, unlike in some trust structures where IHT is paid periodically after the trust is set up.
There are downsides to consider before choosing a family investment company
FICs involve significant administrative tasks. You will be subject to corporate governance rules, meaning you must file annual tax returns and provide clear financial documents. Any mistakes could leave you on the wrong side of complicated regulations, potentially leading to fines.
While there are tax advantages, it is important to remember that withdrawals from the FIC in the form of dividends will still be subject to Dividend Tax, which is calculated based on your marginal rate of Income Tax.
We can help you find the most suitable ways to transfer wealth to your beneficiaries
In some cases, a FIC might be the most suitable option for you. It’s important to note that alternatives such as trusts or utilising standard IHT allowances and exemptions could be more effective.
Our team can assess your situation and discuss your options with you. Contact your relationship manager to discuss any of the topics covered here.
If you are yet to work with us at IPS, please email info@ipscap.com for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients 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 tax planning. IPS Capital does not provide tax advice.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
