Welcome to Hoxton Wealth, the new home of Hoxton Capital
Family Investment Company
Hoxton Tax • Family Investment Company
What is a Family Investment Company? (FIC)
A Family Investment Company is a private limited company used to specifically hold and manage a family’s wealth. As an alternative to a family trust, a company enables the parents to maintain control of the assets and the investment decisions within them. All whilst efficiently transferring value to the next generation.
If you have sufficient wealth consisting of liquid capital or an investment portfolio, a FIC can help you mitigate both your income and Inheritance Tax exposure through a robust framework.
This structure is particularly attractive to higher and additional rate taxpayers. The 25% corporation tax rate and the ability to withdraw loan repayments tax free create an efficient, taxadvantagous framework with built in asset protection.
How does this impact you?
The ability to gift shares over a period of time without an immediate inheritance tax charge enables flexibility as to when and how much value parents transfer to their children. With varied rights on different shares classes, parents can control when their children may benefit from dividends and how the capital is reinvested.
Yes. Different share classes can be used to separate control from economic ownership. Parents can retain voting shares and decision-making control, while gifting growth shares to children. This allows future value to accrue outside of the parent’s estate, without giving up control over how the company is run, how profits are reinvested, and whether or when dividends are paid.
In practice, this often means parents hold shares with voting rights (and potentially fixed or limited economic rights), while children hold non-voting growth shares that benefit from the increase in value over time. This structure can provide a high degree of flexibility, allowing wealth to be transferred gradually and in a controlled manner, aligned with the family’s long-term objectives.
However, care must be taken to ensure that the structure does not fall foul of the Gift with Reservation of Benefit (GWR) rules. If a parent continues to benefit from the value they have gifted (for example, by retaining rights that allow them to enjoy or access that value), the gifted assets may still be treated as part of their estate for Inheritance Tax purposes.
In the context of a FIC, this means it is important that any shares gifted genuinely transfer economic value to the next generation, and that the parent’s retained rights are carefully structured so as not to undermine the effectiveness of the gift. This is a nuanced area and requires careful planning at the outset to ensure the intended inheritance tax outcome is achieved.
Within a FIC most dividends received are done so free of UK tax by the company. Other income such as interest is taxed at the 25% corporation tax rate. Using a FIC allows for a faster roll-up of wealth with the tax reliefs available compared to investments held personally.
However, they can be less efficient where there is a need to extract income personally, as further tax charges may arise on distribution. As such, they tend to work best as a long-term structure for building and retaining wealth, rather than for meeting immediate income needs.
FICs remain significantly more tax-efficient for investment purposes and accumulating wealth. While Discretionary Trusts face a 45% tax rate on most income and periodic 6% Inheritance Tax charges every ten years, a FIC pays Corporation Tax typically at 25%. Crucially, most dividends received by a FIC from other companies are 0% tax-exempt, allowing for a faster “gross roll-up” of capital compared to a trust.
However, this efficiency is primarily at the company level. Where funds are required personally, further tax can arise on extraction (for example through dividends or liquidation), which can reduce the overall advantage.
From an Inheritance Tax perspective, FICs can also offer flexibility, particularly where growth shares are structured to pass future value outside of an individual’s estate while control is retained. They do not fall within the relevant property regime, avoiding the periodic and exit charges associated with discretionary trusts.
They can also provide greater control and visibility compared to trusts, with clear governance through company law, and flexibility over how and when income is distributed between family members.
That said, this must be balanced against increased administrative requirements, including company accounts, filings and ongoing compliance, and the fact that the structure relies on careful upfront planning to ensure the intended tax outcomes are achieved.
Most FICs are funded via a Director’s Loan. As the company generates profit, it can use that cash to repay your loan. Because this is a return of capital (money you already owned), these payments are generally tax-free and do not count toward your personal income for the year. This is a primary "extraction strategy" for founders.
However, the outstanding Director’s Loan remains an asset of your estate for Inheritance Tax purposes, meaning its value would still be taken into account on death unless it has been repaid or otherwise structured as part of wider estate planning.
This requires careful planning. Transferring property is treated as a "sale" at market value. This can trigger Capital Gains Tax (CGT) for you personally and Stamp Duty Land Tax (SDLT) for the company. However, if you are running a "property business" rather than just holding a few investments, you may qualify for Incorporation Relief, which can defer the CGT. Hoxton Tax provide a full feasibility study before any assets are moved.
Potentially, but this introduces additional complexity. The tax treatment will depend on your residence position, where the company is managed and controlled, and how income and gains are treated across jurisdictions. Cross-border advice is essential before proceeding.
Why Hoxton?
A FIC requires the navigation of corporate law and personal tax with a multidisciplinary approach. Hoxton Tax do not just form a company, they carefully create a structure to fulfil the requirements of the family and their legacies.
We help clients:
Plan the Structure – With the understanding of the family’s aims written advice outlining any tax consequences and potential tax traps when forming the company to keep the set up smooth.
Set-up Assistance – By assisting with bespoke Articles of Association, Hoxton help to tailor share classes to meet specific family dynamics and their plans.
IHT Modelling - Detailed projections on how a FIC reduces any future tax exposure and how to tax efficiently pass the company to the next generation.
Asset Contribution Advice – Funding a FIC and transferring assets requires careful planning to navigate Capital Gains Tax and Stamp Duty when transferring them into the company. A step-by-step plan will be provided to ease the process.
Ongoing Compliance: Full support with annual accounts, tax returns, and dividend documentation.
Case Study: Family looking to mitigate their 45% income tax and 40% IHT tax exposure
Following the sale of a family business, a UK resident couple had £5 million of cash they wanted to invest. They were concerned about their income tax rate being at 45% and the value of the cash being taxed at 40% when they passed away.
After reviewing their position and their intention for their children to benefit following their passing, a FIC was created with the £5 million loaned to the company. The parents had voting rights and dividend rights, but the children had a separate share class with dividend rights and capital rights only. The parents had complete control over the assets and when the children could receive money. They made dividend payments to fund their university fees and to support their living costs during this time. The future growth was protected from IHT as it went straight into their children’s estates and, due to the loans provided to the company, the income tax consequences of the dividends and interest generated was reduced by 20% from 45% to 25%.
How Can We Help You?
If you would like to speak to one of our advisers, please get in touch today.
Contact Hoxton Wealth
We are available to discuss how Hoxton Wealth can help you achieve your financial goals. Together, we can help you build a brighter financial future.
