Will the 2025 Autumn Budget make Family Investment Companies even more fashionable?

So are they about to become even more popular, with rumours already swirling ahead of the 2025 Autumn Budget, which could be a blow to those with investment and savings income?

These rumours include moves to extend National Insurance (NI) to savings and investment income, and a potential cut to the £20,000 annual ISA allowance for individuals. Together with the hangover from the 2024 Autumn budget which saw the biggest and most substantial overhaul to IHT in years.

For many, pensions have been a fundamental of inheritance and tax efficient wealth transfer strategies, however their inclusion in the IHT estate from April 2027 , will see this all change.

Could we see the corporate status a FIC offers become more attractive as personal investments and their scope for tax efficient returns are further scaled back, causing a renewed surge in Family Investment Company (FIC) interest?

What is Family Investment Company?

A FIC is essentially a private company established to hold and grow family wealth. It operates like any other company, with ownership and control determined by its share structure.

In most cases, parents retain shares, which carry full voting rights and decision-making, while children (and in some cases grandchildren) are given a different class or classes of shares.  These shares don’t provide control or a voting rights.  However, importantly for succession planning, they do entitle the next generation to benefit from future growth and income – usually to a greater extent than the shares held by the parents.

This structure can therefore enable future growth in wealth to arise in the hands of the next generation so reducing the IHT problem for the parents.  All of this whilst still allowing parents to have overall control of the assets.

How is a Family Investment Company funded initially?  

A typical FIC set up in one of the following three ways: 

a) Initial loan from parents – parents can simply loan cash to the FIC, to provide the FIC with initial funds to make investments. The lending of monies to the company does not create any tax liability, as cash is not a ‘chargeable asset’. The loan is then free for the parents to withdraw at any time without triggering a liability either.  

b) Investment assets are transferred to the FIC – instead of cash, parents can transfer investments already held to the FIC. It works similarly as above, whereby the company would then owe parents funds for the market value of assets transferred, and again this loan is free to withdraw for the parents without triggering a tax liability.  

The only difference here is that unlike cash lent to the company, a transfer of investments is a chargeable disposal, and you will have to pay Capital Gains Tax (CGT).  

As an example, if you hold a share portfolio that you purchased for £200,000, and this portfolio is now worth £500,000 and you wish to transfer this into a FIC you would be deemed as making a disposal for the £500,000, as this is the market value of your investment.  

Chargeable gain = £500,000 – £200,000 = £300,000.  

At the current rate of CGT, this would create a tax charge of £300,000 at 24% = £72,000.  

In some instances, if your investments are standing at a modest Capital Gain, or even a loss this strategy may work better.  

c) An existing company can be re-purposed into a FIC – in very limited circumstances, is it appropriate to use a corporate structure already in existence as a FIC – especially if the company was previously a trading company. 

How is a FIC taxed? 

A FIC is a company and therefore is subject to corporation tax on its taxable income and capital gains.

The current corporation tax rate is 25%, which is generally much lower than the rates of income tax that would apply if the same income were received personally by an individual. Individuals can pay up to 45% on savings income and up to 39.35% on dividend income – and that is before any tax rises in the next Budget.

An additional and significant advantage arises for dividend income arising in a company. In almost all instances, dividends received are exempt from corporation tax completely. This means that qualifying dividend income can accumulate within the FIC entirely tax-free, allowing profits to compound over time.

Consequently, the FIC structure allows families to defer personal taxation while retaining control of assets within a tax-efficient corporate environment.

A thought to trusts? 

When it comes to succession planning, people often view it as an either-or choice, a FIC or a trust.

While we have highlighted the strengths of s FIC already, trusts should not be dismissed as they still have an important role to play in modern family wealth planning and often clients are still very interested in setting up a trust.

Whilst the tax environment may not be as advantageous in comparison to a FIC, trusts still provide unique advantages that a FIC alone cannot always replicate, especially in terms of asset protection, flexibility of distributions, and protection against family disputes.

In fact, some of the most robust family wealth structures combine the strengths of both a FIC and a trust. A trust could be a shareholder to the FIC, and in our experience it is very common for the trust to hold the shares of the children and grandchildren.

Our final thoughts 

Handling the complexities of FICs and succession planning in general can feel overwhelming.

We are however experts in helping families design structures that are tailored to their specific goals, whether that involves establishing a FIC, or other areas that may help in planning to reduce potential IHT exposure.

We have the Autumn budget just around the corner and you can get our verdict on the announcements in our live webinar, so please do sign up here.