A family investment company is an ordinary UK company set up by a family to hold investments or property, usually funded mostly by a loan from the founder, with shares held by children or other relatives. It pays corporation tax at the 25% main rate, receives most dividends tax-free and moves future growth into other family members' hands. Taking money out costs a second layer of tax, so it suits larger sums that the founder does not need as income.
What it is
There is no special legal form. A family investment company is a normal limited company whose purpose is holding the family's investments or property. The founder usually puts money in as a loan rather than shares, so that the loan can be repaid later and the shares stay low in value. Children or other relatives take shares that carry the future growth.
Why families use one
- Dividends the company receives are normally exempt from corporation tax.
- Profits left in the company are taxed at corporation tax rates, not at the founder's income tax rates.
- Growth accrues to shares held by the next generation, outside the founder's estate once any gift has aged.
- The founder can keep control through voting shares.
The costs
- The main rate of 25% applies, as a close investment-holding company cannot use the small profits rate.
- Money taken out as dividends is taxed again on the person receiving it.
- Putting existing property or shares in can trigger tax on the transfer.
- Accounts, a corporation tax return and annual filings are required every year.
Where HMRC looks
HMRC treats a family investment company as an ordinary company, but the settlements legislation can apply where the founder keeps an interest in the income. Shares for minors fall under the rules in shares for your children, and the founder's loan terms should be clear and commercial.
Who it suits
It tends to make sense for people with a substantial sum, a long horizon and no need for the income. For most owner-managed businesses, a pension, ISAs and the alternatives in holding property in a limited company get you most of the way with less complexity.
Sources: HMRC manual CTM03951: close investment-holding companies · HMRC manual TSEM4300: settlements on unmarried minor children · GOV.UK: tax on dividends
Frequently asked questions
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