Family Investment Companies and Family Trusts are both used by UK families to manage wealth, protect the family business and plan for succession, but they work in fundamentally different ways. This guide compares the two structures at a high level, to help directors understand which direction fits their situation before working through the detail with a specialist.
What is a Family Investment Company?
A Family Investment Company (FIC) is a private limited company used to hold and manage family wealth. Family members become shareholders, and the company is subject to Corporation Tax on its profits rather than Income Tax. This corporate structure gives founders a way to retain control while gradually involving other family members in ownership. For the full explanation, read what is a Family Investment Company.
What is a Family Trust?
A Family Trust is a legal arrangement in which trustees hold and manage assets on behalf of named beneficiaries, under the terms set out in a trust deed. Trusts have a long history in UK tax planning and are well understood by HMRC. Income and gains within a trust are generally subject to Income Tax and Capital Gains Tax.
Family Investment Company and family trust compared
The table below sets out the key differences across nine dimensions. Trusts and FICs are both ways of separating wealth from a personal estate for the benefit of a family, and for decades the discretionary trust was the default choice. Since 2006, when trust taxation changed substantially, the comparison has shifted in the FIC's favour for larger sums.
| Feature | Family Investment Company | Family trust (discretionary) |
|---|---|---|
| Legal structure | Private limited company under the Companies Act | Trust deed; trustees hold assets for beneficiaries |
| Charge on entry | No entry charge on subscribing or lending funds | 20% immediate charge on amounts settled above the £325,000 nil-rate band |
| Ongoing IHT charges | None; no ten-year anniversary or exit charges | Ten-year anniversary charge of up to 6%, plus exit charges when assets leave |
| Tax on income and gains | Corporation Tax at the main rate on all profits | Trust rates of up to 45% on income; 24% on gains |
| Control | Founder keeps control through voting shares | Control rests with the trustees, not the settlor |
| Administration | Annual accounts and Corporation Tax return; familiar company compliance | Trust registration, trust tax returns and specialist trustee duties |
| HMRC scrutiny | Reviewed 2019 to 2021; treated as standard planning | Long-established but subject to the more complex relevant property regime |
| Flexibility | Share classes allow tailored income and capital rights | Discretion over distributions, but within the trust deed's fixed terms |
| Typical cost profile | Company setup and ordinary accountancy costs | Trust drafting, ongoing trustee and tax compliance costs |
Neither structure is universally better. Trusts still have a role, particularly for smaller sums within the nil-rate band, for protecting vulnerable beneficiaries, and in some cases alongside a FIC, for example holding FIC shares for minor children. For substantial family wealth where control and tax efficiency both matter, however, the FIC is usually the stronger starting point.
Structure and control
A Family Investment Company allows control to be separated from economic benefit, so a founder can retain oversight of decision-making while other family members hold an interest in the company. A Family Trust is managed by trustees according to the trust deed, and the settlor's ongoing influence depends on the terms set at the outset. Getting either structure right depends on a family's specific circumstances, which is why this is best worked through with a tax planning specialist rather than a general guide.
Tax treatment
A Family Investment Company pays Corporation Tax on its profits, and dividends paid out to shareholders are then subject to Income Tax. A Family Trust does not pay Corporation Tax, but income arising within it is generally subject to Income Tax, and trusts can also face periodic Inheritance Tax charges. The tax position for either structure depends heavily on individual circumstances, so it is worth discussing your position with a tax planning specialist like TLPI before deciding between them.
HMRC scrutiny history
Family Trusts have a long-established history in UK tax law and are generally well understood by HMRC, though offshore trusts attract closer scrutiny. Family Investment Companies are a more recent planning tool, and HMRC has confirmed it monitors how they are used. Both structures need to be set up and operated correctly to remain HMRC-compliant, which is why professional structuring matters from the outset.
Inheritance Tax planning
Inheritance Tax planning is often a deciding factor when families choose between a Family Investment Company and a Family Trust. A FIC can allow wealth to be transferred gradually over time, while a Family Trust removes assets from the settlor's estate on transfer but can face its own periodic tax charges. Which route is more efficient depends on the value involved, the timescale, and the family's wider objectives - a decision worth making with expert input rather than in isolation.
Which structure suits which situation
A Family Investment Company tends to suit families who want to retain ongoing control over investment decisions, who wish to involve multiple generations in managing the business, who want to protect the family business from external claims as it passes down, and who are comfortable with a corporate structure subject to Corporation Tax.
A Family Trust may suit families who prioritise asset protection above flexibility, who have younger or vulnerable beneficiaries requiring ongoing financial support, or who prefer a structure with a longer track record in UK tax planning.
Some families use both together, combining the succession framework of a trust with the tax-efficient corporate structure of a FIC. Whether this combination is appropriate depends on individual circumstances.
Key takeaways
- A Family Investment Company is a private limited company subject to Corporation Tax; a Family Trust is a legal arrangement generally subject to Income Tax and periodic Inheritance Tax charges.
- A FIC tends to offer more flexibility and ongoing control, and can help protect the family business as it passes to future generations; a Family Trust is bound by the terms of the trust deed.
- Both structures are scrutinised by HMRC, and both must be structured and operated correctly to remain compliant.
- A FIC can support Inheritance Tax planning through gradual wealth transfer; a Family Trust removes assets from the estate on transfer but can face its own periodic charges.
- The right structure depends on the family's priorities around control, flexibility, asset protection and the beneficiaries involved - and is best decided with specialist input.
If you are weighing the two structures for your own family, the Family Investment Company page sets out who a FIC suits and when it is premature. Many company directors use a FIC alongside a SSAS rather than choosing between the two.
Deciding between a Family Investment Company and a Family Trust depends on a family's specific objectives around control, tax efficiency and succession. TLPI's tax planning specialists work with company directors to establish the structure that fits their circumstances.
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