You could do this. It just doesn’t do what you were told it does.
Family Investment Companies are the most-recommended structure in this market. They are legitimate, HMRC has looked at them properly, and they can be genuinely useful. What they almost never are is the answer to the question people ask when they set one up.
The one sentence that matters.
A Family Investment Company saves nothing in Inheritance Tax on the money you put into it. Not on day one, not in year seven, not ever.
The shares sit in your estate at full value. A FIC holds investments, so there is no Business Relief – nothing takes the edge off. Move £3m of property into a FIC and you own £3m of shares. The Inheritance Tax position is unchanged.
Almost everyone we meet who has one, or has been offered one, believes otherwise.
HMRC looked, and found nothing.
In 2019 HMRC formed a specialist unit to examine whether Family Investment Companies were being used to avoid tax. It ran for two years. In August 2021 it was disbanded and its work folded into ordinary compliance.
In the research we undertook there was no evidence to suggest that there was a correlation between those who establish a FIC structure and non-compliant behaviours. HMRC, on closing the Family Investment Companies Unit
That is a good answer and it deserves saying out loud. A FIC is an ordinary company doing an ordinary thing. Nobody should feel uneasy about the structure itself.
It freezes. It does not reduce.
The mechanism is share classes. You take freezer shares that lock your interest at today’s value. Your children take growth shares that pick up everything above that line. Today’s value stays with you. Tomorrow’s growth accrues to them.
That is a real benefit. It is also a growth play measured in decades, not a value play measured now. If the assets grow slowly, or you die in ten years rather than thirty, very little has moved.
There is a trap in it too. Founders who keep their freezer shares often find the estate has grown anyway – through retained profits, through the rights attaching to those shares, through simply never taking the next step. The structure exists to stop the estate growing. Frequently it doesn’t.
What it costs to get in.
This matters most for the families we work with, because they already own their property personally.
Incorporation relief under s.162 TCGA 1992 can roll the gain into the shares rather than charge it – but only where a genuine business is transferred as a going concern, and there is now a formal claim requirement rather than it simply applying. Whether an ordinary letting portfolio is a business for that purpose is the same argument set out on Is it a business?, and it is not a safe assumption.
None of this makes a FIC wrong. It makes the entry cost a number you should see before you decide, not after.
The same pound, taxed twice.
The company pays corporation tax on its profits. You then pay income tax on the dividends you draw. Two layers on the same money.
A FIC holding investments is usually a close investment-holding company, which means the small profits rate is not available to it – the main rate applies whatever the profits are. That single point undoes a good deal of the arithmetic people are shown.
Take money out as a loan instead, and leave it outstanding more than nine months after the year end, and the company pays a charge on the balance under s.455 CTA 2010 – refundable, but only once the loan is repaid.
Which leads to the thing that is rarely said plainly: a FIC works best when the money stays inside it.
Ask why it was suggested.
A Family Investment Company works only while the money stays inside it. That is also the money your financial adviser manages, and on which their business is valued.
We are not suggesting anyone is acting badly. Most advisers who recommend FICs believe in them, and for the right family they are right. We are pointing out that the incentive runs one way, and that you are entitled to know which way it runs before you decide.
The same applies to us. We are paid fixed fees, in writing, per item – never a percentage of your assets. That is an incentive too. Ours points at finishing the job.
Consider it. Rarely first, rarely alone.
A FIC suits a family with liquid capital, a long horizon, no immediate need for the income, and growth they genuinely expect to be large. For that family it does something a gift cannot: it moves future value while leaving control where it is.
For a family whose wealth is property already held personally, with substantial latent gains and an income they rely on, the entry cost usually swallows the benefit. And in both cases it does nothing about the value that exists today – which is normally what brought them through the door.
The first question is not which structure. It is how much is enough. Until you know what you need for the rest of your life you cannot know your surplus, and the surplus is the only thing worth planning with. Choose the instrument after that, not before.
Would a FIC move the needle for you?
Eight questions. It will not tell you what to do – eight questions could not. It will tell you whether the conversation is worth having, and it prints its own reasoning so you can argue with it.