Five mistakes families make when setting up a FIC

Most FIC problems do not arise from the idea. They come from small decisions made early, often because the pieces were done in the wrong order or by different people who were not talking to each other. Here are five that we see, and how to avoid them.

1. Gifting cash straight into the company

This is the most common and the most expensive. Many people assume that giving money to a company they own is like giving it to the family. It is not.

A potentially exempt transfer (PET) must be a gift to another individual or to certain disabled or bereaved minor's trusts. A company is neither. So a gift of cash to a company that reduces your estate is an immediately chargeable transfer. It uses your nil-rate band (£325,000), and the excess can be charged at 20% in your lifetime, with a further charge if you die within seven years.

The same applies to paying more than the shares are worth or waiving a loan.

The fix. Choose the funding route deliberately. Parents can give cash to adult children, which is a PET, and the children subscribe for shares. Or the parents lend to the company and subscribe for shares at full value. Or assets are transferred in with the right tax analysis. See funding a FIC with a loan.

2. Ignoring the rules on children under 18

Giving shares to a young child feels natural. The tax rules are less so. If a parent gives shares, or the cash used to buy them, to a child under 18 who is not married or in a civil partnership, the gift is a settlement. Dividends on those shares are taxed on the parent, unless they total £100 or less in the tax year. Above £100, all of it is taxed on the parent, not just the excess.

The rule applies only to settlements by a parent. Gifts from grandparents are outside it unless the arrangement is reciprocal or the parents provide the money. HMRC looks at the whole arrangement, not just the paperwork.

The fix. Design for minors from the start: use a trust, use grandparents' gifts where genuine, or wait until the child is 18. Prefer separate share classes to dividend waivers, which HMRC can challenge as settlements.

3. Taking a benefit from the shares you gave away

The point of passing on growth is that the shares leave your estate. A gift with reservation puts them back. It arises if you do not give up the benefit entirely, or if you keep some benefit from the gifted property.

HMRC's examples include a gift made on condition that the donor becomes a salaried director with a car and other benefits, or where the donor keeps an option to buy the shares back. Continuing pre-existing, commercial director's pay is not a problem, and a parent voting shares in the beneficiaries' interests is not in itself a reservation.

We treat this as a risk to manage. Control alone is not usually a benefit, and arm's-length directors' fees are fine. But retained control plus any benefit from the gifted shares needs care, and there is no honest "no problem" answer without looking at the facts.

The fix. Decide who is paid what, and why, before the shares are gifted. Keep the arrangement commercial and documented. In a blended structure, make sure the settlor and spouse are properly excluded from the trust.

4. Assuming the 19% corporation tax rate

Searches for "family investment company" often turn up the idea that it pays just 19%. For most it does not. A company that mainly holds investments is a close investment-holding company and pays 25% on all its taxable profits, whatever their size. It cannot use the small profits rate or marginal relief.

In practice, the tax may still be low, because most UK and overseas dividends received are exempt, and the tax falls on interest, rent and gains. But a plan built on a 19% assumption is wrong from the start. Only a FIC that mainly lets property commercially to unconnected tenants, or mainly holds trading companies, can use the lower rates. Letting to family does not count. See corporation tax on family investment companies.

Remember too that the limits for lower rates are divided between associated companies, and a FIC controlled by the same people as a trading company is usually associated with it.

The fix. Build the numbers at 25% on investment income and gains. Our FIC vs personal investing calculator does this.

5. Treating governance and protection as an afterthought

A family investment company is a real company. It needs a director who is an individual, minutes for decisions, accurate statutory books and annual filings. The accounts of a limited company are public, and the people with significant control are on the public register.

The documents matter just as much. The articles and a shareholders' agreement decide who can sell shares, what happens on a divorce, bankruptcy or death, and who has the votes. Without them, shares can leave the family in ways nobody intended.

A well-designed structure can help protect family wealth. Articles can restrict transfers and require shares to be sold on divorce or bankruptcy. Growth shares can be non-voting. A discretionary trust can hold some shares, and a pre-nuptial agreement is worth encouraging. None of this is a guarantee, because family courts can take trust and company interests into account and insolvency law has its own reach. See protecting family wealth.

The fix. Decide the governance and protection points at the start. Our in-house legal team can draft the documents, or we can work with your own solicitor.

Getting the order right

The best way to avoid all five is to plan the whole structure first, then act in sequence: funding, share classes, trust if used, governance, then gifts. We start every one from a blank piece of paper, built around your family. For the steps in order, see setting up a family investment company, and if you want 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.