Welcome to our Family Investment Company mini-series
Hoxton Blog • Welcome to our Family Investment Company mini-series
Family Investment Companies have become an increasingly important part of the conversation for families looking to invest, protect, and ultimately pass wealth to the next generation.
But what exactly is a FIC, how does one work, and when might it be worth considering?
In this mini-series, we’ll take you through the key elements of Family Investment Companies – from the fundamentals of how they are structured, through their tax lifecycle and the balance between ownership and control, to how they compare with trusts and where they might fit within a wider estate planning strategy.
We start with the basics: what is a Family Investment Company?
What is a Family Investment Company?
For families who have built significant wealth, there often comes a point when the conversation changes.
It is no longer simply about how to invest successfully. It becomes about how that wealth should be held, how it might eventually pass to children or grandchildren, and how the generation that created it can begin that process without necessarily handing over control today.
A Family Investment Company, or FIC, is one structure that can help families address those questions.
Despite the name, a FIC is not a special type of company recognised separately within UK tax law. It is normally a private limited company, but one that has been deliberately structured to hold and manage family wealth across generations.
The company might hold an investment portfolio, cash, property or other assets. Family members own shares in the company, while its directors are responsible for managing it.
What makes an FIC different from simply setting up an ordinary investment company is the way its ownership, share rights and governance can be designed around the family's longer-term objectives.
How does a Family Investment Company work?
The basic concept is relatively straightforward.
A family establishes a private company. Capital is introduced into that company and the company then invests it in accordance with an agreed investment strategy.
The important part is what sits around that investment portfolio.
Rather than everybody owning the underlying investments personally, family members own shares in the company. Different classes of shares can carry different rights to voting, income, capital and future growth.
That means the people responsible for controlling the company do not necessarily have to hold all of its future economic value.
For example, parents might establish a FIC and remain directors, retaining responsibility for the company's investment and strategic decisions. Other shares can be held by children or later generations, allowing them to participate in the company's income or future growth.
There is no standard FIC structure. The share rights, funding, and governance should all be designed around what that particular family is trying to achieve. This flexibility is central to how FICs work and is reflected throughout both our FIC guide and webinar.
Why do families use them?
An FIC is rarely established for one reason alone.
For many families, the attraction is the combination of investment, control and succession planning within the same structure.
Someone who has spent decades building wealth may want to start planning for the next generation but understandably feel uncomfortable simply transferring a substantial portfolio to their children outright.
A FIC can create a middle ground.
The founder can remain involved in the management of the family's wealth while beginning to introduce the next generation to its ownership. Shares, rather than individual investments, can then become the mechanism through which value is held and ultimately passed between generations.
This can also help families think about succession much earlier. Estate planning does not have to mean deciding today exactly who should receive every asset on death. Instead, a structure can be put in place during the founder's lifetime and developed as the family, its wealth and its priorities change.
There can also be tax advantages, particularly where investment returns can remain within the company and be reinvested over a long period. However, an FIC should not be thought of as a tax-free investment wrapper, and tax should not be the sole reason for establishing one. The company itself is taxable, and there can be further tax consequences when money or value ultimately passes to shareholders.
We explore whether FICs are still tax efficient – and where the advantages and disadvantages really sit – later in this series.
What can an FIC invest in?
An FIC is fundamentally an investment-holding company, so the underlying assets can vary considerably from one family to another.
It might hold a managed investment portfolio, shares and funds, cash, property or other investments. In some cases, bringing assets together within one company can also provide a clearer framework for managing family wealth that would otherwise be spread between different individuals and accounts.
But the choice of asset matters.
Different investments produce different tax outcomes inside a company, and transferring assets that a family already owns into an FIC can itself have tax consequences. It should not therefore be assumed that an existing portfolio or property can simply be moved into a company without first considering the tax cost.
Often, the better starting point is to decide what the family wants the FIC to achieve and then consider how it should be funded and what it should hold.
Who actually owns the money?
This is an important distinction.
Once capital has been introduced into the FIC and invested, the investments belong to the company. They do not belong personally to the founder, the directors or the children who hold shares.
What the family members own are their respective interests in the company.
This is why the share structure matters so much. Different shares can have different voting, dividend and capital rights, meaning that control of the company and participation in its economic value can be separated.
It is also why an FIC needs to be treated as a genuine company rather than simply as a family investment account.
It has directors, shareholders, accounts, tax returns and Companies House obligations. Decisions about investments and distributions need to be made within the legal framework of the company and its constitutional documents.
That additional administration is one of the trade-offs for the flexibility a FIC can provide.
Is a Family Investment Company just an alternative to a trust?
Not necessarily.
FICs and trusts are often discussed together because both can feature in family wealth and succession planning, but they are fundamentally different legal structures.
With a trust, trustees hold and manage assets for beneficiaries in accordance with the trust deed. With an FIC, the company owns the assets, shareholders own shares in the company, and directors manage it under company law.
Each can provide advantages in the right circumstances, and neither is universally better.
Some families may be better served by a trust. Others may prefer the corporate structure of an FIC. In some cases, the two can work alongside each other.
We look specifically at Family Investment Companies versus trusts in the next article in this series.
A structure for the long term
Perhaps the most useful way to think about a Family Investment Company is not as a tax product, but as a framework for holding family wealth over the long term.
It can bring together assets that are intended to remain invested, establish who controls them, determine how different generations participate in their value and provide a structure through which succession can take place gradually rather than at a single point in time.
That does not make an FIC appropriate for every family.
Running one means running a real company, with the associated legal, tax, accounting and governance responsibilities. Its benefits also depend heavily on how it is structured, how it is funded, what it invests in and what the family ultimately wants to take out of it.
The starting point should therefore never be simply, "Should I set up an FIC?"
The better question is: "What are we trying to achieve with our family wealth, and is an FIC the right structure to help us do it?"
At Hoxton Tax, we advise families on how Family Investment Companies can fit within their wider tax, investment and succession planning. That includes considering whether an FIC is appropriate in the first place, how it should be structured and funded, and how it interacts with the family's wider estate planning.
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