Should the shares in a family investment company sit in a trust?

Yes, and the cheapest moment to do it is when the company is formed. Shares in a new family investment company are worth very little, so a gift of them into a discretionary trust normally sits inside the £325,000 nil rate band and costs no inheritance tax. Leave it until the company has grown and the same gift can cost 20% on the excess. A trust adds control, protection from a child's divorce and a way to keep growth out of each generation's estate, but it brings its own charges and a 39.35% tax rate on dividends, so it earns its place on larger sums and a long horizon.

What a trust adds to a family investment company

In a plain family investment company the children hold the growth shares in their own names. That is simple, but it hands each of them an asset outright. If a child divorces, becomes bankrupt or just spends it, the shares go too, and when the child dies they sit in that child's estate and then pass on to the next generation, with inheritance tax possibly due each time.

With a discretionary trust the trustees hold the growth shares instead. No beneficiary owns them or has a fixed right to them, so they are not part of a beneficiary's estate in the ordinary way and the trustees choose who benefits and when. You can keep control by holding the voting shares yourself, or by being one of the trustees alongside someone you trust. You cannot be a beneficiary yourself, for reasons covered below.

It does not make the shares untouchable. A divorce court can look at what a spouse can realistically expect to receive from a trust, so the protection is strong rather than absolute. Our page on divorce and spouse shares in a family company covers the other side of that question.

Why timing decides the cost

A gift of shares into a discretionary trust is a chargeable lifetime transfer. Inheritance tax is charged only on the part above your available nil rate band, which is £325,000 less any other chargeable transfers you made in the previous seven years. The band is frozen at £325,000 until 5 April 2031, so growth in the company is not matched by growth in the band.

There is a Capital Gains Tax point as well. Shares that have grown carry a gain, and a gift of them is treated as a sale at market value. Because a gift into a discretionary trust is chargeable for inheritance tax, gift hold-over relief can defer that gain, provided the trust is not one you can benefit from. An outright gift to a child is not chargeable and gets no hold-over relief. The funding side is in funding a family investment company.

What the trust costs

• Ten-year charge. Every ten years from the day the trust is created, the trustees pay inheritance tax of up to 6% on value above the nil rate band, and a proportion of that when shares leave the trust between anniversaries. Family investment company shares get no business property relief, so the charge is worked out on their full value.
• Tax on income. For 2026/27 trustees pay 39.35% on dividend income and 45% on other income above a £500 de minimis amount. The old standard rate band has gone. A dividend paid up to the trust is therefore taxed at the top rate, which is why trust-held shares are usually kept for growth and the company pays them little or nothing.
• Admin. A trust deed drafted for the family, registration on HMRC's Trust Registration Service, trust tax returns when there is income or a gain, and written records of trustee decisions.
• The entry charge if you wait. The 20% above the nil rate band on any gift made after the shares have grown.

The traps

A trust you can benefit from. If you or your spouse can benefit, even as a long-stop beneficiary, the trust is settlor-interested. Hold-over relief is refused on the gift, the income is taxed on you and the shares may still count as yours for inheritance tax, which defeats the point. The deed needs to exclude you and your spouse from the class of beneficiaries, and a trust that later becomes settlor-interested can claw back relief already given.

Your own young children. Where income is paid to or for your own unmarried child under 18, anything over £100 a year is taxed on you, and a trust does not change that. See shares for your children and alphabet shares.

Trusts that borrow. Budget 2026 tightened the inheritance tax deduction for a trust's liabilities, for chargeable events on or after 28 October 2026. It is aimed at trust borrowing arrangements, so if the trustees are going to lend or borrow, get fresh advice before the deed is signed.

Trust or outright gift?

Who it suits

A trust is worth the cost where the sums are large enough that the family's nil rate bands will be exceeded over time, the children are young or a divorce is a real possibility, and you want a say in when and to whom the growth passes. It is hard to justify on modest sums, where the ten-year charge, the 39.35% rate and the fees take more than the structure saves, and for adult children you trust, an outright gift with no periodic charges is often the simpler route.

If you are weighing a family investment company at all, start with whether it beats the alternatives, then decide who holds the shares. We would model both before anything moves.

Sources: HMRC manual IHTM42001: relevant property trusts · HMRC manual IHTM42110: exit charges · HMRC manual CG66883: gifts to settlor-interested settlements · HMRC manual CG67032: hold-over relief for gifts subject to Inheritance Tax · HMRC manual TSEM4300: settlements on unmarried minor children · Budget 2026: rates and allowances, including trust rates · GOV.UK: trusts and taxes. General guidance on the rules at 12 November 2026; your own facts decide the answer.