How to Set Up a Family Investment Company

If you are looking at how to set up a family investment company, the first thing to know is that a FIC is usually just a limited company used to hold family investments. The real planning work is not the company formation itself. It is deciding who controls the company, who benefits from the value and income, how the company is funded, and what the tax consequences are at each stage.

That matters because a FIC can be a useful structure, but it is not a magic tax wrapper. A family investment company may help with control, succession planning and long-term family wealth management, but the result depends on the assets involved, the share structure, and how money moves in and out of the company.

What is a family investment company?

A family investment company is typically a private company used to hold investments such as cash, listed shares, portfolios and sometimes property. It is often set up so that parents or founders retain control through voting shares, while children or other family members hold shares that benefit from future growth or income.

In practice, this means a FIC is often used where a family wants to:

• keep investment assets in one structure
• retain decision-making control
• plan for the next generation
• separate control from economic ownership
• manage how and when value is passed on

Step 1: Be clear on what you want the FIC to achieve

Before a family investment company is formed, you need to be clear on the objective. In most cases, the goal is not simply “set up a company”. The real goal is usually one of the following:

• passing future value to children or grandchildren
• retaining control over investment decisions
• building a long-term family investment vehicle
• improving how family wealth is managed and documented
• planning with Inheritance Tax gift rules in mind

This is important because different goals point to different structures. A FIC designed mainly for succession planning may need a very different share structure from a FIC designed mainly to hold retained investment capital.

Step 2: Decide who will own the shares and who will control the company

This is one of the most important parts of setting up a FIC.

Many family investment companies use different classes of shares so that one generation can keep control while another generation benefits from growth or income. For example, parents may hold voting shares while children hold non-voting growth shares.

This is where the structure needs care. The company’s share rights, articles and decision-making rules should reflect the family’s real intentions. If the legal documents do not match the intended tax and succession outcome, the structure can create problems later.

Step 3: Think carefully about how the FIC will be funded

A FIC can be funded in different ways. Cash is often the cleanest starting point. If you move existing assets into the company, the tax position needs to be reviewed first.

For example, if a company sells or disposes of assets, it will usually pay Corporation Tax when it sells assets. HMRC also makes clear that a company’s taxable profits can include profits from investments and chargeable gains. If the company holds investments that rise in value and are later sold, the tax treatment inside the company needs to be understood from the start.

That is why families should ask:

• Is money going in as share capital?
• Is it going in as a loan?
• Are existing shares, property or other investments being transferred in?
• What tax is triggered by putting those assets into the company?

If those questions are not dealt with properly, the setup can become expensive quite quickly.

Step 4: Understand the company tax position

A family investment company is still a company for tax purposes. That means it is generally within the Corporation Tax regime.

The current Corporation Tax rates and allowances mean that smaller profits may be taxed at 19%, profits above the upper threshold are taxed at 25%, and marginal relief can apply in between. That does not automatically make a FIC better than holding investments personally, but it is one of the reasons families look at the structure carefully.

Another point that often matters is investment income. HMRC’s own manual explains that most dividends received by companies are exempt, although there are exceptions and the details still need to be reviewed properly. That can make a FIC attractive where the main asset base is a portfolio of shares producing dividend income.

Step 5: Understand the tax when money comes back out

It is not enough to look only at the tax inside the company. You also need to look at the tax when profits are extracted.

If the company pays dividends to individual shareholders, those shareholders may need to pay tax personally under the tax on dividends rules. HMRC confirms that there is a dividend allowance, but dividends above that can be taxed depending on the person’s income tax band.

This is why a FIC should be assessed as a full journey, not just a setup exercise:

• tax when value goes in
• tax while assets are held
• tax when assets are sold
• tax when profits are distributed
• tax when shares are gifted or passed on

A FIC can be useful, but the planning only works if the whole chain is considered.

Step 6: Consider the inheritance tax position properly

For many families, inheritance tax planning is one of the reasons a FIC is discussed in the first place.

HMRC’s guidance on rules on giving gifts and working out Inheritance Tax due on gifts is essential here. In broad terms, lifetime gifts may fall outside the estate if the rules are met and enough time passes, but the outcome depends on exactly what was given away, what value was retained, and whether the donor still benefits from the asset.

That means a FIC should never be treated as a simple “inheritance tax fix”. If parents keep too much value or control in the wrong way, or if the structure is not implemented properly, the expected inheritance tax result may not follow.

Step 7: Get the legal and tax design right before incorporation

The company formation itself is usually the easy part. The difficult part is getting the design right before the documents are signed.

That usually means dealing with:

• the share classes
• the voting rights
• the dividend rights
• who the directors will be
• whether family members subscribe for shares now or later
• whether value is introduced by cash, loan or asset transfer
• how the structure fits with wider estate planning

This is why families often need joined-up advice rather than a basic company setup service.

Is a family investment company right for you?

A family investment company can work well where a family has meaningful assets to invest, wants long-term control, and is willing to deal with ongoing company administration and tax compliance.

It may be less attractive where the sums involved are modest, the family wants easy personal access to the funds, or the structure is being considered only because it sounds tax efficient without a proper review of the numbers.

The better question is not “How do I set up a FIC?” The better question is “Should I use a FIC for my family’s goals, and if so, how should it be structured properly?”

At Merranti, we help families work through that question before anything is set up. That includes reviewing the tax position, working through the funding method, and helping make sure the structure is built around your actual goals rather than a generic template.

If you are considering a family investment company, speak to Merranti before setting one up. We can help you decide whether a FIC is appropriate, how it should be structured, and what the ongoing tax and compliance implications are likely to be.