How should you fund a family investment company, and what does each route cost in tax?

Cash is usually the cheapest way to fund a family investment company, put in mostly as a loan from the founder with a small amount of share capital. Cash triggers no Capital Gains Tax or Stamp Duty Land Tax, and a loan is not a gift, so no inheritance tax arises on it. The costs sit in transferring property or shares: Capital Gains Tax is charged as if the asset were sold at market value, Stamp Duty Land Tax can be charged on market value, and a gift into the company is an immediate inheritance tax transfer, not a seven-year one.

Cash as a loan or as share capital

Lending cash to the company creates no Capital Gains Tax, no Stamp Duty Land Tax and no inheritance tax. The loan sits on the founder's loan account and can be repaid later without tax, because it is the founder's own money coming back. Paying cash in for shares at their full price is also free of those taxes.

What does not work is simply giving the company cash. A gift of cash to a company is treated as a gift, not a loan, and it is taxed as described under inheritance tax below. Record every pound as either a loan on written terms or paid-up share capital.

Transferring property or shares in

• Capital Gains Tax. Putting an asset into a company you are connected with is treated as a sale at market value, whatever the company pays. Gift hold-over relief does not apply to a gift of shares to a company, and investment property is not a business asset for that relief. Incorporation relief only applies where a genuine business is transferred, so it rarely helps a passive portfolio.
• Stamp Duty Land Tax. Where the company is connected with the person transferring the property, the chargeable amount is at least the market value, even if nothing is paid. A mortgage the company takes over also counts as payment.
• Share exchange. Swapping shares in another company for shares in your family investment company can defer the gain under the share reorganisation rules, but the anti-avoidance rule in section 137 was rewritten for shares issued on or after 26 November 2025. It now bites where a main purpose of an arrangement is to obtain a tax advantage, and the ICAEW describes pre-sale steps aimed at the substantial shareholding exemption as the target.

The inheritance tax position

• Gift into the company. A gift from an individual to a company cannot be a potentially exempt transfer. It is a chargeable lifetime transfer, so anything above your available nil rate band (£325,000) is taxed at 20% straight away, with no seven-year wait.
• Gift of shares to family. Giving shares in the family investment company to another individual is a potentially exempt transfer. It falls out of the estate if the donor survives seven years, with taper relief on the tax if death comes after year three.
• Issue growth shares at the start. New shares issued to children at launch, at their nominal price, create no gain. Transferring existing shares after the value has grown is a Capital Gains Tax disposal at market value.
• No business property relief. Relief is not available on a business that consists mainly of holding investments. From 6 April 2026 the 100% relief is capped at £2.5 million per person for qualifying business and agricultural property combined, with 50% relief above it, but shares in a family investment company do not qualify at all. Check the effect before moving qualifying trading shares into an investment structure.
• Pensions. Most unused pension funds come into the estate for deaths from 6 April 2027, which makes the estate larger for the same planning problem.

The founder's loan account

Repayments of the loan are tax-free and give the founder money without income tax. The terms should be written down, including when the loan is repayable. Any part of the loan the founder has not gifted stays in their estate.

The loan, or part of it, can be gifted to other family members. That is a potentially exempt transfer, so it leaves the estate after seven years, but the founder gives up the right to be repaid. Gift only what you will not need. Control stays with voting shares, which can be kept separate from the growth shares.

Shares held in a discretionary trust

A gift of shares into a discretionary trust is a chargeable lifetime transfer, so the same 20% charge applies above the nil rate band. Because the transfer is chargeable, gift hold-over relief for Capital Gains Tax is available on any gain, which it is not on an outright gift to a child. The trust then faces the ten-year inheritance tax charge on value above the nil rate band, at up to 6%. The £2.5 million trust relief allowance only covers qualifying business and agricultural property, so family investment company shares do not use it.

Getting money out, and what it costs in 2026/27

• Loan repayments. Tax-free, up to the amount lent.
• Dividends. After the £500 allowance, 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band, all up 2 points on the first two since 6 April 2026. The settlements rules and the £100 rule for unmarried minor children are covered in alphabet shares and shares for your children.
• Company buying back shares. Capital treatment under section 1033 is for unquoted trading companies, so a buyback by an investment company is normally taxed as a distribution.
• Winding up. Distributions are normally capital, but a targeted anti-avoidance rule can recharge them as income, so check it before liquidating.

Inside the company, profits are taxed at the 25% main rate, as explained in what a family investment company is.

When funding it this way does not fit

The structure suits cash that the founder does not need as income and can lend for years. It does not suit someone who needs to move in appreciated property or shares, where tax on the transfer can outweigh years of benefit. We model each route, with the tax on the way in and the way out, before anything moves.

Sources: GOV.UK: agricultural and business property relief changes from 6 April 2026 · GOV.UK: share exchanges and reorganisations anti-avoidance · ICAEW: Budget 2025 changes to share exchange rules · HMRC manual SDLTM30220: connected company deemed market value · HMRC HS295: relief for gifts and similar transactions · GOV.UK: dividend tax rates from 6 April 2026 · GOV.UK: unused pension funds and Inheritance Tax · HMRC manual CG58625: purchase of own shares