Family & Personal Investment Companies gaining renewed relevance against tax tightening backdrop

Personal & Family Investment Companies (PIC/FICs) have existed for many years as a planning vehicle for business owners and high net worth families. What has changed is not the structure itself, but the tax environment in which it operates. 

The 2024 and 2025 Autumn Budgets have seen a steady tightening of personal tax allowances and rates, with rising rates of capital gains tax (CGT), frozen income and inheritance tax (IHT) thresholds and pensions set to fall under IHT rules from April 2027.

The end result is ever-increasing tax burden on income and capital now, as well as bigger IHT problems in the future, for a growing number of estates with limited ways to be creative with IHT mitigation.

In short, the tax consequences of holding and reinvesting wealth personally are going in only one direction, up. In this environment, a PIC or a FIC offers a potential alternative for holding and generating wealth now, as well as greater flexibility for passing that wealth on in the future.

At its simplest, a PIC/FIC is a UK company set up to hold and invest family capital. Instead of investments being owned personally, they are owned by the company. Profits are taxed at corporation tax rates and can usually be reinvested within the company without an immediate further personal tax charge. 

The shareholders are typically family members or trusts for their benefit, allowing wealth to be managed collectively and succession planning to be built in from the outset.

The real advantage today lies in what happens over time.

PICs/FICs can be complex and introduce additional costs and obligations when it comes to running the company and ensuring it is compliant with the law. That means they aren’t for everyone, but there are two key reasons why PICs/FICs are becoming more attractive 

1. Rising personal tax burden

Two changes in particular have altered the landscape:

CGT was increased in the 2024 Autumn Budget, with the lower rate rising from 10% to 18% and the higher rate rising from 20% to 24%

Frozen income tax thresholds meaning more earners are being pushed into higher tax brackets

The frozen thresholds issue is of particular note. While it doesn’t get the same major headlines, it can have a substantial impact on returns for investors. Despite some modest moves up and down, tax thresholds have remained almost the same since the 2010/11 tax year, where the higher rate tax band kicked in at £37,401 compared to £37,701 today.

Using data from the Bank of England, £37,401 inflation adjusted from 2010 to December 2025 is £58,509. In simple terms, it means that basic rate tax band upper limit would have to rise to this figure of £58,509 to equate to the same tax impact felt in 2010.

For individuals with substantial portfolios, this means annual tax leakage has increased significantly. Income and gains are taxed as they arise, reducing the capital available for reinvestment each year.

Inside an FIC, investment profits are subject to corporation tax, but post tax profits can generally be rolled up and reinvested without triggering dividend tax until funds are extracted. Over long-time horizons, reducing that second layer of tax during the growth phase can materially affect outcomes.

2. Challenges for managing IHT and intergenerational wealth

With higher taxes and tighter allowances, families are increasingly focused on preserving capital across generations. Recent Budgets have intensified that focus by increasing the potential inheritance tax burden in several ways.

The nil rate band has been frozen at £325,000 since 2009 and is now set to remain frozen until at least 2031. The residence nil rate band has also been fixed, despite significant asset price inflation over that period. As a result, more estates are being drawn into inheritance tax simply through asset growth and fiscal drag.

The plan to bring unused pension funds within the scope of inheritance tax from April 2027 also represent a material shift for many families who have relied on pensions as a relatively IHT efficient intergenerational vehicle. If implemented as outlined, this would significantly expand the portion of wealth exposed to 40% inheritance tax on death.

Combined with rising property values and investment portfolios that have grown over time, many families who would not historically have considered themselves exposed to inheritance tax are now facing substantial potential liabilities.

Structures that enable orderly and tax efficient wealth transfer have clearly become more important.

The case for a FIC is about managing when and how tax is paid, and who ultimately bears it. The corporate structure can offer the potential for greater control over who and when profits are realised and ownership is transferred, increasing flexibility and long-term planning opportunities. 

Reducing ongoing tax drag on family wealth

When investments are held personally, income and gains are generally taxed as they arise. For higher and additional rate taxpayers, that can mean income tax and dividend tax at up to 39.35%, and capital gains tax at up to 24%, with only limited annual exemptions available. Over time, this combination of income tax, dividend tax and CGT can create a significant annual drag on capital available for reinvestment.

Within a Family Investment Company, profits are subject to corporation tax, currently up to 25%. Although tax is still paid, it is often at a lower rate than the combined personal tax charges that would otherwise apply. In addition, the UK dividend exemption generally means that dividends received by the company from underlying investments are not subject to further corporation tax. This dividend treatment can create a structural advantage compared to holding income-producing assets personally, particularly for higher rate taxpayers.

Once corporation tax has been paid, the remaining profits can also typically be retained and reinvested within the company without triggering an immediate second layer of personal tax. The benefit is not that tax disappears, but that it can be deferred and managed. By reducing the annual personal tax drag during the growth phase, more capital remains invested for longer, allowing compounding to work more effectively. Over time, that can produce materially higher overall wealth.

How funds are introduced into the FIC also plays a significant role in shaping the personal tax position. In practice, capital is often advanced to the company by way of interest free shareholder loans, or through the creation of preference shares subscribed at market value.

Shareholder loans can generally be repaid without further income tax consequences, providing a tax efficient route to extract capital. Preference share structures can also allow value to accrue in growth shares held by the next generation, while fixing value in the hands of the senior family members.

Extraction can then be timed strategically. Dividends can be paid when shareholders are basic rate taxpayers, when allowances are available, or when family members have lower marginal rates. Alternatively, repayment of shareholder loans can provide liquidity without creating dividend tax exposure.

In short, an FIC allows families to manage both the rate and timing of personal taxation, rather than being exposed to income tax, dividend tax and CGT automatically each year, while also structuring how value is introduced and ultimately extracted.

Moving future growth outside the taxable estate

The inheritance tax position is one where FICs can be powerful if structured correctly and implemented early.

A common approach is for parents to subscribe for voting shares that give them control, while growth shares are issued to children or to a trust for their benefit. At the outset, those growth shares may have minimal value. If structured carefully, any future increase in the value of the company can then accrue largely to the next generation.

This means that:

The parents can retain day to day control of the underlying assets

Future growth can build up outside their estates

The value remaining in their personal estates can be capped or reduced over time and even assigned to others (gifts).

In an environment where the nil rate band has been frozen for many years, and pensions may soon be within scope of IHT, removing future growth from the estate can significantly reduce the eventual 40% charge.

For example, if £3 million of capital is invested through an FIC and grows to £6 million over time, careful share structuring could allow much of that £3 million of growth to sit with the next generation rather than within the parents’ estates. At a 40% IHT rate, that growth alone could otherwise represent a £1.2 million tax exposure.

Used alongside other planning, such as lifetime gifting strategies and trusts, an FIC can form part of a broader framework to manage intergenerational transfer in a controlled and tax efficient way.

One of the reasons FICs are often attractive compared to outright gifts is that control does not have to be surrendered. Parents can retain voting rights and direct investment strategy, while gradually shifting economic value.

FICs are not appropriate for every situation. They involve administration, professional costs and ongoing compliance. For shorter time horizons or smaller portfolios, the benefit may be limited. 

However, for families with substantial capital, long term investment horizons and a desire for control and succession planning, the tightening of personal tax rules has strengthened the case for corporate holding structures.

The key shift is that as personal tax leakage has increased, the cost of doing nothing has risen. In that context, structuring for efficient compounding is central to preserving and growing family wealth over time.

For more information on FICs or to discuss any other aspect of your own financial situation, speak to your usual Evelyn Partners contact or book an appointment.

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