FIC or trust? Why many families now use both

"Should we use a family investment company or a trust?" is one of the questions we are asked most often. It is a reasonable question, but it assumes you have to pick one. Many families now use both, in what we call a blended FIC.

What each does well

A family investment company (FIC) is an ordinary private company that holds family wealth. The parents usually keep the voting shares and the children, or a trust, hold shares that take future growth. Its main strengths are that most dividends it receives are exempt from corporation tax, so it can reinvest gross, and that it has no ten-yearly or exit charges.

A discretionary trust is a legal arrangement where trustees hold assets for a class of beneficiaries and decide who benefits, and when. Its main strength is flexibility: the trustees can respond if a child's circumstances change, and no beneficiary owns the assets outright.

Where each is weaker

A FIC on its own gives children or grandchildren shares that they own. That is simple and efficient, but it gives you little say over what happens to those shares later. Gifts of shares to children are potentially exempt transfers, which is helpful for inheritance tax, but the shares sit in each child's estate.

A trust on its own has a heavier inheritance tax regime. A lifetime gift into a discretionary trust is not a potentially exempt transfer. Above the available nil-rate band (£325,000) it is charged at 20%, with a possible further charge if the person dies within seven years. Then there are ten-yearly charges, up to 6% of the trust's value at each tenth anniversary, and exit charges of up to 6% when assets leave. A trust that holds investments directly also pays income tax at the trust rates: 39.35% on dividends and 45% on other income.

What a blended FIC looks like

In a blended FIC the family uses both pieces. Typically:

• the parents hold freezer shares, with the votes and a frozen value;
• the children hold growth shares directly, where that suits;
• a discretionary trust also holds growth shares, for grandchildren, younger children or anyone for whom outright ownership is not right;
• separate share classes (alphabet shares) let dividends be directed to different shareholders.

We design each one from a blank piece of paper. There is no template, because families differ in size, dynamics and what they want to achieve. Our page on the blended FIC structure explains it in more detail.

Why combine them?

Protection and flexibility. Shares held through a trust are not owned outright by one child. That can help protect them if a child divorces or becomes bankrupt, or if shares might otherwise leave the family. We say "help protect", not "protect", because family courts can take trust and company interests into account and insolvency law has its own reach.

Managing the trust's tax exposure. The trust holds shares in a company, not a large portfolio, and it can be settled with newly issued, low-value growth shares or a modest amount of cash. That keeps the entry charge small. Exit charges before the first ten-year anniversary are worked out on the value at the start, so they are often nil or small.

Dividend direction. Dividends can go to the shareholders who need them, such as adult children in lower tax bands, without the parents having to give up control. We prefer separate share classes for this over dividend waivers, which HMRC can challenge as settlements.

Control stays with the family. The parents can act as directors and keep the votes through the freezer shares. A parent acting as trustee and voting the trust's shares in the beneficiaries' interests is not in itself a reservation of benefit.

What you give up

A blended structure is not free of trade-offs, and it is not for everyone.

• The settlor cannot benefit. For the gift into the trust to be effective for inheritance tax, the settlor and spouse must be excluded from benefit permanently. For capital gains holdover, minor children must be excluded too.
• Ten-yearly charges still apply. If the growth shares in the trust do well, the trust pays up to 6% of the grown value every ten years.
• Extra admin. There is a trust deed, trustees, a trust registration and a dividend tax rate of 39.35% inside the trust if it receives dividends.
• Seven-year clocks. Gifts into the trust start a seven-year cumulation period, and cash gifts to children start a seven-year period for potentially exempt transfers.

For some families, the right answer is a simple FIC with the children holding shares directly. For others it is a trust alone. We say so when that is the case.

A short example

Imagine parents with three children and a £6m portfolio that they will not need. One child is settled and sensible, one is going through a difficult relationship, and there are four grandchildren, the eldest only ten.

A plain FIC would give each child shares outright. A trust alone would carry entry and ten-yearly charges on a large sum. In a blended structure, the parents keep the freezer shares and the votes. The settled child holds growth shares directly. The trustees hold growth shares for the second child's family and for the grandchildren, and can decide later who benefits and when. Each element answers a different concern, which is why we design them together rather than choosing one label.

How to decide

Start with what you want for your family: control, fairness between children, protection from outside claims, an eventual handover. Then decide which tools fit. Our FIC vs trust page sets out the differences side by side, and our page on a trust as FIC shareholder describes how it works when combined. For protection in particular, see protecting family wealth.

If you would like to talk it through, book a free call. We respond the same working day.

This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Law as at 9 October 2026. Please speak to us before acting.