Inheritance tax and family investment companies

It depends on the amounts, the growth and how long the parents live. The saving is mainly 40% of the growth that builds up in shares held by the children or a trust, once any gift of those shares has survived seven years. It does not remove tax on the original money if you lend it. Our inheritance tax calculator gives a first estimate, and a Chartered Tax Adviser can model your own figures on a free call.

A loan is not a gift. It is a debt the company owes you, and it remains something you own until it is repaid or you give it away. That is why a loan-funded company does not cut tax on the original capital. What it does is stop future growth from adding to your estate, because the growth belongs to the shareholders. You can also repay the loan to yourself over time, tax-free.

A gift with reservation is one where you keep a benefit from what you gave away, so for inheritance tax it is treated as still yours. Keeping the voting shares or acting as director is not of itself a reservation, but benefits connected to the gift can be: for example a new salaried role as a condition of the gift, or a right to buy the shares back. It is a risk to manage with advice.

Arm's-length directors' fees for real work are usually fine, and continuing pre-existing commercial pay is not normally treated as a reservation of benefit. The risk is pay that is really a way of taking benefit from the gifted shares, such as a role created as a condition of the gift. The fee should reflect the work done and be set before shares are gifted. We help families document this so that it can be defended.

The people who received the gift may have to pay inheritance tax if more than £325,000 was given away. A potentially exempt transfer that fails uses your nil-rate band first, and only the excess is taxed, with taper relief after three years. Your executors deal with tax on the estate itself. It is worth keeping records of what was given, when, and to whom, so the position can be shown to HMRC.

A potentially exempt transfer must be a gift to another individual, or to a disabled person's or bereaved minor's trust. A company is neither, so a gift of cash to a company is an immediately chargeable transfer, to the extent it reduces your estate. That is why cash is usually given to adult children, who then subscribe for shares, or lent to the company, rather than gifted to it directly.

Altering the share capital or share rights of a close company, for example converting existing shares into freezer and growth classes, is treated for inheritance tax as a disposition by the shareholders, and such a disposition cannot be a potentially exempt transfer. There can also be a capital gains value shift. That is why we normally start from a blank piece of paper and issue new growth shares rather than reshape old ones.

From 6 April 2026, 100% relief applies to the first £2.5m of combined business and agricultural property per person, with 50% above that, and unused allowance can pass to a spouse. It matters only if the family investment company is mainly a holding company of trading businesses. Shares in a company that mainly holds investments or property do not qualify, whatever the allowance.

It can. Shares held by a spouse or civil partner are treated as related property and aggregated with yours when valuing each holding. Each spouse's shares are valued as a proportionate part of the combined holding, so two 30% holdings may be valued as shares in a 60% holding rather than as minorities. That can push the value of the parents' shares up, which is worth knowing before any gift is planned.

It can. A transfer of value by a close company, such as the company making a gift or selling something for less than its worth, is apportioned among its shareholders as if they had made it. A family investment company should therefore not give assets away or deal with family members below market value without advice. Normal investment activity is not affected.

They change the numbers for many families. For deaths on or after 6 April 2027, most unused pension funds and death benefits will count towards the estate for inheritance tax, with personal representatives responsible for reporting and paying. More families may therefore find their estates are above the nil-rate band than before. Whether a family investment company is the answer depends on how much you have outside the pension and what you want to do with it.

The nil-rate band is £325,000 and the residence nil-rate band is £175,000 where a home passes to direct descendants, reduced by £1 for every £2 above £2m. Unused amounts can pass to a spouse or civil partner. Both are frozen until 5 April 2031. The standard rate is 40%, or 36% if 10% or more of the net estate goes to charity.

They can, once the gift is outside your estate, which for a gift of shares to an individual means after seven years. The residence nil-rate band reduces by £1 for every £2 by which the estate exceeds £2m, so moving value out of the estate can help preserve it. The loan and any shares you keep remain in the estate, so the effect depends on how the company is funded and who holds what.

Shares left in a will remain in the estate and attract inheritance tax at 40% above the nil-rate band, though the shares are revalued at death for capital gains tax. A lifetime gift can fall outside the estate after seven years, but it is a disposal at market value for capital gains tax. There is no uplift for assets inside the company. Gifting early, when values are low, tends to keep the cost down.

Yes. Since 6 April 2025, inheritance tax depends on residence rather than domicile. A person who has been UK resident for at least 10 of the previous 20 tax years is a long-term UK resident and their worldwide assets are in scope, with a tail of between three and ten years after leaving. An overseas company wrapper does not take UK residential property out of the charge.

Sometimes, but the route differs. For a trading business, Business Relief may already cover the shares, and moving it into an investment company could lose it, so we check first. For property, a family investment company can take future growth outside the estate, but the move into the company has capital gains tax and stamp duty land tax costs. The best answer for each asset can be different.