A quick note: this article is general information, not personal advice. Tax and accounting rules change and everyone's situation is different, so please don't act on anything here without checking how it applies to you. We'd be happy to help — get in touch before making any decisions.
For families who want to pass wealth down the generations but keep a firm hand on the controls, the Family Investment Company (FIC) has become one of the most popular planning tools around. It's a tax-efficient way to grow and hold investments, while letting the older generation decide how and when value passes to children and grandchildren. Here's how a FIC works, and where freezer and growth shares come in.
What is a Family Investment Company?
A Family Investment Company is simply a private limited company set up to hold and grow investments, typically cash, shares, funds or property, for the benefit of a family. Rather than holding investments personally or in a trust, the family holds them through a company they own and control.
The parents (or grandparents) usually fund the company, often by lending it money, and the family members hold the shares. Because it's an ordinary company, profits are taxed at corporation tax rates rather than higher personal income tax rates. That can make it an efficient vehicle for reinvesting and compounding wealth over time.
Why families use a FIC
- Control: the founders can keep voting control and decide how the company is run, even after gifting value to the next generation.
- Tax efficiency: investment income and gains are taxed at corporation tax rates, and dividends the company receives are often exempt, so profits can be reinvested efficiently.
- Inheritance tax planning: structured properly, future growth in the investments can accrue to the children's shares, outside the parents' estate, while the parents keep control.
- Flexibility: a company is familiar and well understood, and it can be tailored through its share structure and articles.
How freezer and growth shares work
This is where a FIC really earns its reputation. The share structure is designed so that the current value of the company is "frozen" with the founders, while the future growth passes to the next generation. It's done using two classes of shares:
- Freezer shares, held by the parents. These capture the company's value as it stands today and usually carry the voting control and the rights to capital up to that frozen value. The parents keep what they've built and stay in charge.
- Growth shares, held by (or for) the children. These have little or no value today, but they're entitled to the future growth in the company above the frozen value.
Because the growth shares are worth next to nothing when they're issued, they can be passed to the next generation at little or no immediate tax cost. As the investments grow over the years, that increase in value builds up in the children's growth shares, outside the parents' estate for inheritance tax, while the parents hold on to control through their freezer shares and voting rights.
A simple example
Say parents set up a FIC and fund it with £1 million. They take freezer shares fixed at that £1 million value and issue growth shares to their children. Ten years on, the investments have grown to £1.8 million. The original £1 million stays with the parents' freezer shares, but the £800,000 of growth sits with the children's growth shares, having passed down the generations without ever being in the parents' estate, and without the parents loosening their grip along the way.
FIC versus a trust
Families have traditionally reached for trusts for this kind of planning, and trusts still have their place. But trusts can face upfront inheritance tax charges on larger gifts, plus ongoing ten-year and exit charges. A FIC sidesteps those particular trust charges and uses the familiar, flexible framework of a company, which is one reason FICs have grown in popularity. The right answer depends on your circumstances, and the two can even work alongside each other.
Points to bear in mind
A FIC is a long-term commitment. It has to be set up with care, because the share classes, rights and company articles all need drafting correctly to achieve the result you're after. There are running costs and filing obligations, money lent in is repayable to the founders rather than gifted away, and the tax rules in this area do change. It's a structure that rewards proper planning and ongoing advice, not a one-off setup you forget about.
Could a FIC work for your family?
A Family Investment Company tends to suit families with significant investable wealth who want to pass value down while keeping control, and who are happy to commit to a long-term plan. If that sounds like you, we can talk through whether a FIC, and a freezer/growth share structure, is the right fit and set it up correctly from day one.