Glossary

Family Investment Company Glossary

Plain-English definitions of the family investment company and inheritance tax terms families meet, from alphabet shares to PETs and the seven-year rule.

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A

A shares (ordinary voting shares): In a family investment company, the class of shares that carries the votes, usually held by the parents. A shares often have little or no right to dividends or growth, so the parents keep control without the company's value building up in their own estate. The rights attached are set out in the articles of association and can be tailored to the family.Read more →
Alphabet shares: Different classes of shares in the same company, labelled A, B, C and so on, each with its own rights to votes, dividends and capital. In a family investment company they let directors pay dividends to some shareholders and not others, so each family member can be treated differently within one company. The rights must be set out clearly in the articles of association.Read more →
Articles of association: The company's rulebook, setting out how it is run and the rights attached to each class of shares. For a family investment company they are central: they create the share classes, say who can receive dividends, restrict transfers of shares and can protect the parents' control. They are a public document filed at Companies House, so sensitive terms often go in a shareholders' agreement instead.Read more →

B

Blended family investment company: A family investment company in which a discretionary trust is one of the shareholders alongside the family. Typically the older generation hold freezer shares with the votes, and growth shares in separate classes are held by the children and by the trust. It combines the company's control and tax treatment with the trust's flexibility over who benefits, but brings the trust inheritance tax charges.Read more →
Business Relief: An inheritance tax relief of up to 100% on the value of certain business assets, such as shares in a trading company. It is not available for a business that mainly makes or holds investments, so shares in a family investment company generally do not qualify. Anyone wanting assets to qualify for Business Relief should consider a different structure, and take advice first.Read more →

C

Capital gains tax (individuals): The tax an individual pays on the profit made when selling or giving away an asset, such as shares or property. For 2026/27 the rates are 18% and 24%, after a £3,000 annual exempt amount. A company does not pay capital gains tax; it pays corporation tax on its chargeable gains instead. The difference is one of the points compared in the FIC vs personal investing tool.Read more →
Chargeable gain (company): The profit a company makes on selling an asset such as shares or property, calculated under capital gains rules but charged to corporation tax rather than capital gains tax. A family investment company pays tax on its chargeable gains at the main rate, which is 25% for 2026/27. Indexation allowance has been frozen since 2017, so only the original cost is deducted in most cases.Read more →
Chargeable lifetime transfer: A lifetime gift that is immediately within the scope of inheritance tax, for example a gift into a discretionary trust or to a company. Amounts above the nil-rate band are taxed at 20% on entry, with further tax at up to 40% if the donor dies within seven years. A cash gift to a family investment company is generally a chargeable lifetime transfer, not a potentially exempt transfer.Read more →
Close company: A company controlled by five or fewer shareholders, or by its directors who are also shareholders. Most family-owned companies are close companies. Special rules apply to them, including tax charges on loans made to shareholders and on benefits given to participators. A family investment company is nearly always a close company, which affects how it is taxed and how money is taken out.Read more →
Close investment-holding company: A close company that does not mainly carry on a trade or let property to unconnected people. A family investment company usually falls into this category. The main consequence is that the 19% small profits rate is not available, so profits are taxed at the main rate of 25% for 2026/27. There are exceptions, so the position should be confirmed for each company.Read more →
Corporation tax main rate: The standard rate of corporation tax, which is 25% for 2026/27. A lower 19% rate applies to small profits, with marginal relief between, but a close investment-holding company such as a family investment company generally cannot use it. The main rate applies to its interest, rent and chargeable gains, while most dividends it receives are exempt.Read more →

D

Discretionary trust: A trust where the trustees decide which of a group of beneficiaries receives income or capital, and when. It can be a way to pass wealth on while keeping flexibility, but gifts into one above the nil-rate band attract a 20% entry charge and the trust is subject to the relevant property regime. A family investment company is an alternative that avoids those charges but works differently.Read more →
Discretionary trust as a shareholder: Where the trustees of a discretionary trust hold shares in a family investment company, usually a class of growth shares. Dividends paid to the trust are taxed at trust rates, and the shares sit within the relevant property regime, with possible entry, ten-yearly and exit charges. The trust lets value benefit future generations and keeps the shares one step removed from any individual.Read more →
Dividend allowance: The amount of dividend income an individual can receive each tax year without paying income tax on it. For 2026/27 it is £500. Dividends above the allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. It applies per person, so spreading dividends across family members uses more allowances.Read more →
Dividend exemption (company): The rule that most dividends a company receives from other companies are exempt from corporation tax. It lets a family investment company invest in shares and funds and receive dividends without a second layer of tax at company level. The exemption has conditions and some exceptions, so how a particular investment is treated should be checked.Read more →

F

Family investment company: An ordinary private limited company set up by a family to hold investments, usually funded mainly by a loan from the parents, who keep control through voting shares while children or others hold shares that take the growth. It is taxed as a company. It is used for long-term wealth planning, particularly to keep future growth outside the parents' estate for inheritance tax.Read more →
Freezer shares: Shares whose value is fixed or limited, so that growth in the company goes to other shares. They are used in estate planning to freeze the value of an estate asset at today's figure. In a family investment company, a similar effect is often achieved through the loan, which stays at its face value while the growth accrues to the children's shares.Read more →

G

Gift with reservation of benefit: A gift where the donor keeps a benefit from the asset given away, such as continuing to live in a gifted home or receiving the income from gifted shares. For inheritance tax the asset is treated as still part of the donor's estate. It is a risk to avoid when parents hold rights in a family investment company, so the share rights need careful drafting.Read more →
Growth shares: Shares designed to take only the increase in a company's value above a stated threshold, rather than its existing value. They are used to pass future growth to someone, often the next generation, without passing on current value. In a family investment company, the children's share classes work in a similar way where they carry the growth rather than the original capital.Read more →

L

Liquidation (members' voluntary liquidation): A formal process for winding up a solvent company, in which an insolvency practitioner sells the assets, pays the debts and distributes what remains to the shareholders. It is the usual way to close a family investment company that is no longer needed. The tax treatment of the distributions depends on the circumstances and on the anti-avoidance rules, so advice is needed before starting.Read more →
Loan account (director's or shareholder's loan): A record of money owed between a company and a director or shareholder. In a family investment company, the parents usually lend money to the company, creating a loan account in their favour. It can be repaid to them tax-free, but it stays in their estate at face value for inheritance tax. If the company lends to a shareholder, tax charges can arise.Read more →

M

Market value rule (connected persons): The rule that treats a transfer of an asset between connected persons, such as a person and their company, as made at market value for tax, regardless of the price actually paid. Moving property into a family investment company is therefore taxed on its market value for capital gains and stamp duty land tax, even if no money changes hands.Read more →

N

Nil-rate band: The amount of an estate that can pass free of inheritance tax, set at £325,000 for 2026/27. Anything above it, apart from certain reliefs and exemptions, is taxed at 40% on death. The band also applies to lifetime gifts into trusts and companies. The nil-rate band can be shared with a surviving spouse or civil partner, and the residence nil-rate band is added where it applies.Read more →
Non-voting shares: Shares that carry rights to dividends and capital but no vote at shareholders' meetings. In a family investment company they are typically held by children, so the parents keep control through voting shares while the children take the growth. The rights can be varied by class, and the articles and any shareholders' agreement should set out what holders can and cannot do.Read more →

P

Potentially exempt transfer: A lifetime gift to another individual that is free of inheritance tax if the person making it survives seven years. If they die within seven years, the gift becomes taxable, with taper relief possibly reducing the tax after three years. Gifts of shares in a family investment company to children are generally potentially exempt transfers, unlike a cash gift to the company itself.Read more →

R

Relevant property regime (10-year charge): The inheritance tax rules for most discretionary trusts. They charge up to 6% on the trust's value every ten years, with exit charges when assets leave, in addition to the 20% entry charge on gifts above the nil-rate band. A family investment company is not subject to the regime, which is one reason some families prefer it, though the control and flexibility differ.Read more →
Residence nil-rate band: An extra inheritance tax allowance, £175,000 for 2026/27, available when a home is left to direct descendants, such as children or grandchildren. It is added to the nil-rate band and tapers away for estates over £2 million. It can be transferred to a surviving spouse. Its effect on a family's inheritance tax is separate from the family investment company analysis.Read more →

S

SDLT on transfers to a connected company: Stamp duty land tax charged when UK residential or commercial property is transferred to a company connected with the transferor. The tax is calculated on the market value of the property, not the price paid, and the company bears it. Higher rates can apply to companies buying residential property. This is a main reason existing property is not usually moved into a family investment company.Read more →
Settlements legislation: Anti-avoidance tax rules that can treat income from gifted assets as still belonging to the person who made the gift. They are relevant where parents give shares to their children: income above £100 a year from a parent's gift to an unmarried child under 18 is taxed on the parent. The rules affect how shares and dividends are structured in a family investment company.Read more →
Seven-year rule: The rule that a lifetime gift to an individual, or to certain trusts, falls out of the donor's estate for inheritance tax if the donor survives seven years from the date of the gift. If they die within that period, the gift is brought back into the calculation, with taper relief reducing the tax payable if death occurs more than three years after the gift.Read more →
Shareholders' agreement: A private contract between the shareholders and sometimes the company, setting out how the company is run and what each shareholder can and cannot do. In a family investment company it can restrict sales of shares, set out what happens on divorce, death or a family dispute, and protect the parents' control. Unlike the articles, it does not have to be filed at Companies House.Read more →

T

Taper relief: A reduction in the inheritance tax payable on a lifetime gift where the donor dies between three and seven years after making it. The tax, not the value of the gift, is reduced by 20% to 80%, depending on how long they survive. It applies only to gifts that exceed the nil-rate band, so it often has no effect on smaller gifts.Read more →

U

Unlimited company: A company whose members are personally liable, without limit, for its debts if it cannot pay them. Some families choose one for a family investment company because it may not need to file accounts publicly if certain conditions are met, which preserves privacy. The trade-off is the risk to the members' personal assets, so the choice needs careful advice.Read more →

FAQs

Frequently asked questions

How do I find a term in the family investment company glossary?

Use the search box to type a word or phrase, or browse the terms from A to Z. Each definition is short and in plain English, and many link on to a related page or tool for more detail. If a term you have heard is not listed, ask us on a free first call and we will explain it in the context of your own plans.

Are the glossary definitions the same as the legal definitions?

No. The definitions are simplified to help you follow the subject, and the exact legal tests are more detailed. Tax law uses precise definitions that can change with each Finance Act, and some terms have different meanings for different taxes. Please do not rely on a glossary entry to decide what to do. We will tell you how a rule applies to your own facts.

What does PET stand for, and where can I find it?

PET stands for potentially exempt transfer: a lifetime gift to another individual that becomes free of inheritance tax if the person who made it survives seven years. You can find it in the glossary under P, alongside related entries on the seven-year rule, taper relief and chargeable lifetime transfers, which are the gifts that do not qualify.

How often is the glossary updated?

We review it whenever tax rates, allowances or rules change, and at least once a year. The figures we quote, such as corporation tax and dividend rates, are for 2026/27. If you spot a term that looks out of date, or one you would like added, let us know and we will look at it.

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