Estate planning using a Family Investment Company

Family Investment Companies (‘FIC’s)

I have been commissioned by Taxation (Tolley) to write an article for publication in 2023 about the, ‘Tax-Efficient Structuring of an FIC – Legal & Tax issues to address when drafting the Articles of Association & Shareholders’ Agreement.

Following the recent disbanding by HMRC of their specialist unit on FIC’s, they are treated as ‘business as usual’ like any other tax matter.

A Family Investment Company (‘FIC’) is a private company, controlled and run by its directors (i.e., the Testator/Head of the family (‘T‘) and his/her wife/husband/civil partner (‘S’), with adult family members (i.e., T’s children (‘G.2’) and grandchildren (‘G.3’) owning the shares. All day-to-day control and investment decisions are vested in the directors, who must comply with their fiduciary duties. A FIC can be used by the individuals to transfer value to family members (or other individuals), while retaining control over the assets gifted and/or the access of G.2 and G.3.

‘Where an individual has significant cash balances, usually above the inheritance tax nil-rate band, and a desire to undertake inheritance tax planning, the FIC can be an attractive solution. The basic concept is to use a limited company to attempt to mirror as closely as possible the features of a trust – i.e., separation of control and ownership – although it is not possible to achieve the protections of a trust completely. With a FIC, cash can be given to individuals directly to invest in the FIC and funded through loans made to the company by the donor, although it is often desirable to combine some ownership through a trust too. Clients often prefer a company to a trust because it is a structure with which they are familiar having run their own trading company.’ (‘Trusts v FICs’ by Sam Hart and Craig Simpson, Taxation, 15 June 2021).

An initial gift will be a PET, and there is no restriction on size. However, T needs to survive 7 years from when the gift was made for it to wash out of account for IHT. Tapering of any tax arises after 3 years. Where a FIC is funded by loan, there is no immediate gift, and the IHT advantage is earned over time, as profits accrue.

The immediate problem with an FIC is that the cash gifted to G.2/G.3, which is now invested in shares, or shares with capital value held in their name, are in their estates for IHT and matrimonial purposes. This is the price of transferring substantial amounts of cash compared to the amounts that can be transferred to a trust.

There are also elephant-sized ‘tax’ traps for the unwary, e.g. an alteration made to a close company’s share or loan capital, or of any rights attaching to shares or debentures, is treated as a disposition made by the participators. So, if a change in the rights attaching to a share results in a decrease in value, the affected shareholder is treated as having made a transfer of value (‘TOV’) to the shareholder whose shares have increased in value. This type of transfer is specifically prevented from being a potentially exempt transfer (‘PET’) by IHTA 1984, s 98(3), and will be immediately chargeable to inheritance tax, subject to the application of the usual IHT exemptions. HMRC gives an example in its Inheritance Tax Manual at IHTM04069.

It is therefore important, to ensure that a fit and robust shareholding structure is established from the outset. If changes become necessary, they should be structured so that the TOV can qualify as a PET.

Thought also needs to be given as to how to retain control of the FIC without inadvertently retaining an asset with a significant value for IHT even if the shares retained by the founders do not have any capital or income rights attached to them. HMRC is likely to apply 20% to 25% of the value of the FIC to the voting shares. There are ways to mitigate this with proper planning.

Every FIC is bespoke. Therefore, all family members involved need to be engaged in the planning process, i.e. so that they understand the structure and approve the corporate governance documents.


Mediation can be used as a family estate planning process. This is the subject of the second part of an article I am writing for Taxation (Tolley), which will be published in March 2022, ‘Back to the Future’. See also: Zoom Mediation & Estate Planning – Carl Islam

Planning and implementation requires the involvement of: corporate; estate planning; and tax advisors, appointed and paid for by the Head of the Family (i.e. the Patriarch). Their function is to design and develop the structure and bespoke terms of:

(i)   the Articles of Association of the FIC;

(ii)  the Memorandum of Association of the FIC; and

(iii) a comprehensive Shareholders’ Agreement.

Throughout the mediated planning process, corporate lawyers should work hand in glove with a TEP and CTA, to ensure that the drafting of the FIC: Articles; Memorandum of Association; and Shareholders’ Agreement, accords with and fulfils the family’s ‘charter’ of planning objectives, e.g. the preservation of capital wealth for the benefit of future generations, i.e. by including transfer restrictions to prevent shares from being passed outside the bloodline, and requiring that adult shareholders enter into nuptial agreements for asset protection.

A Mediator who is also a TEP and has knowledge and experience of drafting corporate governance documents adds value, by facilitating communication between family members and professional advisors, so that planning is the consensual result of joined-up thinking, otherwise opportunities for wealth planning may be lost between the cracks.

FIC Incorporation & Documents Check List 

  1. Structure.
  2. Residence and fiscal jurisdiction.
  3. Memorandum of Association.
  4. Articles.
  5. Directors.
  6. Share capital.
  7. Share transfers.
  8. Shareholders Agreement.
  9. Governance.
  10. Dividends.
  11. Funding.
  12. Accounts, filing, and regulatory compliance.

Memorandum of Association



  1. Definitions (including types of shares, i.e., ordinary, non-voting, preference, and redeemable).
  2. Share Capital.
  3. Issue of shares.
  4. Return of capital rights.
  5. Voting rights.
  6. Dividends.
  7. Redemption of redeemable preference shares.
  8. Variation of class rights.
  9. Refusal to register transfers.
  10. Permitted transfer of shares.
  11. Transfer pre-emption provisions.
  12. Compulsory transfers.
  13. General Meetings.
  14. Proceedings at General Meetings.
  15. Votes of Members.
  16. Number of Directors.
  17. Alternative Directors.
  18. Powers of Directors.
  19. Appointment and retirement of Directors.
  20. Remuneration of Directors.
  21. Proceedings of Directors.
  22. Borrowing powers.
  23. Notices.
  24. Indemnity.
  25. Winding up.
  26. Subsidiary undertakings.
  27. Mediation & Arbitration.

Shareholders Agreement

  1. Definitions and interpretation.
  2. Undertakings.
  3. Directors and secretary.
  4. Termination for breach.
  5. Termination on notice.
  6. Dividend and distribution policy.
  7. Notices.
  8. General.
  9. Governing law and jurisdiction.

Schedule – Reserved Matters.

For a discussion of the use of ‘ethical’ private companies in Islamic wealth planning, see my blog; Islamic law principles applicable to the administration of trusts | Carl’s Wealth Planning Blog