Are Family Investment Companies the New Trusts?

Big changes are coming to the way people pass on their wealth, and if you’re still planning to leave everything in your will, it might be time to think again. In this article, we explore whether family investment companies are the new trusts.

Should we be passing on assets sooner rather than later

The Autumn 2024 Budget has shaken things up. Changes to Inheritance Tax (IHT), especially around business property relief, have prompted many families to ask, ‘Should we be passing on assets sooner rather than later?’ For a growing number, the answer is yes – but only with the right strategy in place.

Trusts were the go-to option

For years, trusts were the go-to option for transferring wealth. They allowed parents to gift assets while retaining a level of control. But following a series of tax changes, trusts have lost some of their appeal. Larger gifts into trusts can now trigger an immediate 20% IHT charge, a steep cost for families trying to preserve wealth.

That’s where Family Investment Companies (FICs) come in. These private companies are set up to hold long-term family assets such as shares, savings, or property. The clever part? Children can hold shares or loans in the company, giving them future benefits, while parents stay in control. They retain decision-making power, manage investments, and decide when (and if) money is paid out. This structure also allows families to build in safeguards against divorce, poor financial decisions, or simply the risks of handing over too much, too soon.

In short, you can pass on wealth without losing control and without the fear of it being blown on a sports car the next day.

Family Investment Companies can be efficient too!

From a tax perspective, FICs can be efficient too. Value gradually shifts out of the parents’ estates, reducing potential IHT exposure, but without the immediate 20% charge trusts can trigger. And because FICs are companies, income (like dividends) is often taxed at lower corporate rates, which can be far more favourable than personal tax rates.

No structure is perfect

Of course, no structure is perfect. FICs do come with administrative responsibilities and require careful setup, especially if the company owns shares in a trading business. The rules can be complex, and expert advice is essential.

Greater tax savings over the longer term.

Still, for families thinking long-term, FICs could be the missing link in a modern, flexible approach to wealth planning. They offer a powerful mix of tax efficiency, control, and structure, helping families grow and protect wealth across generations. In some cases, establishing a FIC alongside family trusts can achieve even greater tax savings over the longer term.

Thinking of taking action? Now is the time to explore your options.

Next Steps

Contact ETC today to discuss how we can support you, your children, and even future generations. The sooner you start, the more opportunity you’ll have to plan smartly and maintain wealth.