The family investment company as an investment wrapper

By Jon Fisher, Head of Wealth Management at Sedulo Wealth

A family investment company (FIC) is a private company, usually limited by shares, established to hold and manage investments for a family. It is routinely described as a structure for the very wealthy — a description that reflects where FICs were first used rather than where they are useful now.

The formation and compliance requirements are those of any small private company: incorporation, bespoke articles and a shareholders’ agreement as a one-off cost, then annual accounts, a corporation tax return and a confirmation statement. The figures are considerably lower than most people assume, and they are largely fixed. Wrapper charges are not: an offshore bond carries an establishment charge and an annual percentage of the fund, and the platform holding it charges on the same basis. Above a modest asset level, the fixed cost of running a company can sit below the equivalent ad valorem cost. For a portfolio of £1m or more held outside pensions and ISAs, cost is rarely the reason to rule a FIC out.

Investments are always held within a wrapper of some description: an ISA, a pension, an onshore or offshore bond, a general investment account. Each has its own rules on contributions, the taxation of income and gains within it, the consequences of withdrawal and the position on death. A FIC belongs in that comparison and stands or falls on the same criteria.

Taxation within the company

Most dividends received by a UK company, whether from UK or overseas holdings, are exempt from corporation tax and can be retained and reinvested without an immediate charge. The personal dividend rates for 2026/27 are 35.75% at the higher rate and 39.35% at the additional rate, so a portfolio with a meaningful natural yield compounds materially faster inside the company than outside it.

Other income and gains — interest, rental income and realised capital gains — bear corporation tax, and the applicable rate is where most general commentary goes wrong. A close company whose business consists wholly or mainly of making investments is a close investment-holding company (CIHC) under section 18N CTA 2010, and a CIHC pays the main rate of 25% on all of its profits; neither the 19% small profits rate nor marginal relief is available to it, at any level of profit. Most FICs holding a securities portfolio fall squarely within that definition. The 19% rate, and the 26.5% marginal rate between the £50,000 and £250,000 limits, apply only where the company trades or where its business is wholly or mainly the commercial letting of property to unconnected persons — which is why the intended activity and the associated company position must be settled before incorporation.

Even at a flat 25%, the comparison with personal ownership is compelling. Interest and rental income are taxed on individuals at up to 45%, each rising by two percentage points from April 2027 under the new separate savings and property income rates. Gains within the company bear 25% with no annual exempt amount — but equally no obligation to realise them in any particular period. The timing sits with the directors.

Extracting funds

Where the company is capitalised partly by director’s loan rather than share capital, repayments of that loan are a return of capital and carry no income tax charge. Properly documented, this gives the founder a tax-free income stream for as long as the loan account lasts, drawn from a portfolio that continues to compound inside the company.

Beyond that, shareholder-directors choose between salary and dividend, and choose when. Salary is deductible against corporation tax but attracts income tax and both employee and employer national insurance; dividends carry no national insurance but come from profits already taxed. The balance is set each year against the recipient’s other income. No other wrapper offers comparable control over both the timing and the character of the tax charge.

Further features

National insurance record. A salary at or above the lower earnings limit secures a qualifying year towards the state pension — easily overlooked, and valuable to a director short of the 35 years needed for the full new state pension.

Distribution across the family. Salary and dividends can be paid to adult family members who are directors or shareholders, using their personal allowances and basic rate bands, so profits are taxed across several people rather than one. Salary must be commensurate with the work undertaken, and dividends on shares held by minor children are treated as the parent’s income under the settlements legislation.

Employer pension contributions. The company can contribute to its directors’ pensions. Contributions are deductible in computing profits and carry no national insurance, so the same money funds retirement provision and reduces the corporation tax charge. On drawing benefits, 25% of the fund is normally available as a tax-free lump sum, subject to the lump sum allowance. Where the company has taxable profits and the directors have annual allowance available, this is among the most efficient routes for moving value out.

Deductible expenses. Investment management fees, custody charges, accountancy fees and the other costs of managing the investment business are generally deductible as management expenses. An individual holding the same portfolio personally gets no relief at all.

Investment flexibility

A FIC can hold assets no other wrapper will accommodate: regulated funds and listed equities, unquoted shares, loans, commercial property, and residential property held directly as bricks and mortar. On residential purchases the 17% flat rate of SDLT can apply above £500,000, together with an annual ATED charge, unless a relief is available — a cost to price in at the outset.

Succession planning

The structure separates economic value from control. Alphabet shares — separate classes carrying differing rights to dividends, capital and votes — allow real value to pass to children and other beneficiaries while the founder retains the voting shares and the decision-making, without selling anything in the portfolio.

Gifts of shares to individuals are potentially exempt transfers and fall outside the estate after seven years. They are disposals at market value for capital gains tax, so gifting is best done early, while values are low — one of several reasons the share structure should be designed at incorporation. Shares can also be settled into trust up to the available nil-rate band once in every seven years without an immediate charge to inheritance tax, with holdover relief on the gain, though such trusts fall within the relevant property regime and its ten-yearly and exit charges.

Position alongside other wrappers

A FIC does not displace the wrappers already in use. The ISA allowance retains its value, pensions remain the principal retirement vehicle for most clients, and offshore bonds do things a FIC cannot — particularly for clients anticipating non-residence. The right answer is usually a combination.

What a FIC offers, and the alternatives do not, is a structure the family controls: the rate at which income is taxed within it, when gains are realised, who receives the profits, and how value passes to the next generation. Assessed on the same criteria as any other wrapper, it earns its place far more often than its reputation allows.

We advise on the establishment and running of family investment companies, including share structure, funding, extraction strategy and the interaction with existing pension and ISA provision. If you would like to discuss whether one would suit your circumstances, please get in touch.

This article is for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can fall as well as rise. Please speak to us before acting on anything set out above.