Tax & Structuring

Family Investment Company vs Foundation 2026: Which for UK Families?

Amin

— 11 min read
Share
A private family-office boardroom with ancestral portraits overlooking a city, representing a family investment company

A family investment company (FIC) is a private limited company a family uses to hold and grow investments, with the family owning the shares and often lending in the capital. Parents keep a voting class and a director seat for control, while value passes to the children's share classes. The one-line verdict: a FIC suits a family staying UK-resident that wants control plus compounding growth, a relevant-property trust suits one that wants trustee discretion and asset protection and will accept the charges, and a UAE Foundation only wins once a family has genuinely relocated and broken UK residence. This guide compares all three on tax, control and succession, with every figure sourced.

For the wider menu of routes after the 2025 reforms, start with our pillar guide on UK non-dom alternatives in 2026.

Key Takeaways

  • A FIC is not an inheritance-tax silver bullet: the shares stay in the shareholders' estates and are taxed at 40% on death (GOV.UK, 2026). The IHT saving comes from the gift and the share-class growth freeze, not the company itself.
  • A FIC pays corporation tax of 19% on profits up to GBP 50,000 and 25% above GBP 250,000, with marginal relief between (GOV.UK, 2026).
  • Extracting profit is double-taxed: corporation tax inside, then dividend tax of up to 39.35% from 6 April 2026 (GOV.UK, 2026).
  • A relevant-property trust carries a 20% entry charge above the nil-rate band and up to 6% every ten years, but it keeps assets outside the settlor's estate and allows CGT holdover on the gift in.
  • A UAE Foundation only helps a family that has genuinely left the UK; while you stay UK-resident, the FIC and trust rules dominate.

What is a family investment company, and how does it work?

A family investment company is a UK private company that holds investments, where the family owns the shares and frequently lends money in as repayable capital. It pays corporation tax of 19% on profits up to GBP 50,000 and 25% above GBP 250,000, with marginal relief between (GOV.UK, 2026). Founders keep voting control and a director seat, while economic value flows to the children's share classes.

Here is the part most articles get wrong. The company wrapper does not remove anything from your estate. A FIC works for inheritance tax through two separate mechanisms. First, the gift: cash you subscribe for shares, or shares you later give away, is a potentially exempt transfer that drops out of your estate if you survive seven years. Second, the freeze: a tiered share structure lets future growth accrue to the children's class rather than yours, so your shares stop swelling. The wrapper is the vehicle. The gift and the freeze do the IHT work.

Control is the other draw, and it is genuine. Parents typically hold the voting shares and sit as directors, retaining a veto over investment policy and distributions while the value sits with the next generation. A FIC also compounds efficiently inside: dividends it receives from its own holdings are exempt from corporation tax (GOV.UK, 2026). So portfolio income can be reinvested without a tax drag, which is the FIC's strongest single feature.

Now the honest limits. A FIC gets no Business Property Relief, because investment activity is not trading, and no capital gains tax holdover when you gift the shares, so a gift of appreciated shares can be a chargeable disposal. The shares themselves remain in the shareholders' estates and face 40% inheritance tax on death, with a possible minority discount but no exemption (GOV.UK, 2026). HMRC ran a dedicated FIC unit from 2019, wound it up in 2021 and found no link between FICs and avoidance (Kingsley Napley, 2021). That is reassurance, not a clearance: ordinary anti-avoidance rules still apply.

Citation capsule: A family investment company pays corporation tax of 19% up to GBP 50,000 and 25% above GBP 250,000, and dividends it receives are corporation-tax exempt, but its shares stay in the shareholders' estates at 40% inheritance tax on death (GOV.UK, 2026). The inheritance-tax benefit comes from the gift and the share-class growth freeze, not the company wrapper.

FIC vs trust vs UAE Foundation comparison matrix The FIC keeps founder control with no entry or periodic charge but shares stay in the estate at 40 percent; the trust gives discretion and keeps assets out of the estate but charges 20 percent entry and up to 6 percent every ten years; the UAE Foundation is ownerless with zero UAE tax but only suits a genuinely relocated family. FIC vs trust vs UAE Foundation FIC Trust UAE Foundation Control Founder votes Trustee discretion Council / charter IHT entry charge None (gift = PET) 20% above NRB UK gift rules apply Periodic charge None Up to 6% / 10 yrs None in UAE On death Shares in estate 40% no exemption Outside estate 0% UAE estate tax CGT holdover in No Yes Not applicable Sources: GOV.UK, 2026; HMRC IHTM42081
FIC vs trust vs UAE Foundation across control, charges and estate position. Sources: GOV.UK, 2026; HMRC IHTM42081. A FIC has no entry or periodic charge, but its shares stay in the estate at 40%.

FIC vs trust: which costs more in inheritance tax?

The two routes tax inheritance in opposite places, so neither is automatically cheaper. A relevant-property trust pays a 20% entry charge on value gifted above the nil-rate band, then up to 6% every ten years and an exit charge when assets leave (GOV.UK, 2026). A FIC pays none of those, but the shares remain in the shareholders' estates and face 40% on death (GOV.UK, 2026). You are choosing where the tax falls, not whether it falls.

Look at the timing, not just the headline. The trust's cost is visible and arrives early, a 20% charge on the slice above the nil-rate band, which sits at GBP 325,000 and is frozen to 5 April 2031 (GOV.UK, 2026). After that the assets are outside the settlor's estate, subject only to the periodic and exit charges. The FIC defers everything to death, when the shares are valued in the estate at 40%. A minority shareholding may attract a valuation discount, but a discount is not an exemption.

The entry decision and CGT holdover

Capital gains tax often decides the way in. Gifting appreciated assets into a relevant-property trust is a chargeable transfer, but holdover relief is available, so the gain rolls into the trust rather than crystallising on the gift (GOV.UK, 2026). Gifting FIC shares gets no holdover, because the company is not trading, so a gift of shares that have risen in value can trigger a tax charge now. For a family sitting on large unrealised gains, that single difference can outweigh the trust's entry charge.

Extraction: the FIC's hidden cost

Getting money out of a FIC is taxed twice. Profit is taxed inside at corporation tax of up to 25%, then taxed again as it is paid out, with dividend tax of 10.75%, 35.75% or 39.35% from 6 April 2026 and only a GBP 500 allowance (GOV.UK, 2026). So a FIC is efficient for a family that wants to compound wealth inside the company, and inefficient for one that needs to draw a regular income out of it. Match the wrapper to the cash-flow need.

The trust comparison sits in its own spoke. For how the 2025 changes hit settlor-interested offshore trusts and the relevant-property charges in detail, see our note on the 2025 UK offshore trust changes. For the underlying residence-based IHT mechanics that now decide whether your worldwide estate is in scope, see our non-dom inheritance tax guide.

Citation capsule: A relevant-property trust pays a 20% entry charge above the GBP 325,000 nil-rate band and up to 6% every ten years, but assets fall outside the settlor's estate and CGT holdover applies on the gift in (GOV.UK, 2026). A FIC avoids those charges, but its shares stay in the estate at 40% and extracted profit is double-taxed, with dividend tax up to 39.35% from 6 April 2026.

Inheritance-tax charge comparison: trust vs FIC The trust carries a 20 percent entry charge and up to 6 percent every ten years with assets outside the estate; the FIC has no entry or periodic charge but its in-estate shares are taxed at 40 percent on death. Where the IHT charge falls: trust vs FIC Trust assets sit outside the estate; FIC shares stay inside it 0% 20% 40% 20% Trust entry above NRB up to 6% Trust 10-yr per cycle 0% FIC entry and periodic 40% FIC on death shares in estate Sources: GOV.UK Trusts and IHT, 2026; GOV.UK Inheritance Tax, 2026
Where the inheritance-tax charge falls: a trust pays at entry and every ten years but sits outside the estate, while a FIC pays nothing until the in-estate shares are taxed at 40% on death. Sources: GOV.UK, 2026.

FIC vs UAE Foundation: when does relocating change the answer?

A UAE Foundation only changes the answer once a family has genuinely left the UK. It is an ownerless entity with its own legal personality, no shareholders, and 0% UAE corporate and personal income tax, run by a council under a charter (DIFC, 2026). But while you remain UK-resident, the UK rules still govern the underlying gift and your worldwide estate, so the FIC and trust comparison dominates the decision.

Residence, not the entity, is what moves the tax. Since 6 April 2025 the UK taxes inheritance on a residence basis: a long-term resident, broadly anyone UK-resident for at least 10 of the previous 20 tax years, has their worldwide estate in UK scope (GOV.UK, 2026). Setting up a Foundation in Dubai while you live in London does not remove your assets from that net. A tail can also follow you for several years after you leave, depending on how long you were resident.

So the Foundation is a destination structure, not an escape hatch. For a family that has truly relocated, broken UK residence and run down the IHT tail, a UAE Foundation can deliver succession control, asset protection and 0% UAE tax in one ownerless wrapper, often sitting above a holding company that owns the investments. Which UAE jurisdiction to use, DIFC or ADGM, is a separate decision with its own trade-offs, and we cover it in our guide to DIFC vs ADGM foundations. For the holding-company layer beneath a Foundation, see our note on the UAE holding company.

Citation capsule: A UAE Foundation is an ownerless entity with separate legal personality and 0% UAE corporate and personal income tax (DIFC, 2026), but it does not switch off UK inheritance tax for a UK resident. Under the residence-based regime from 6 April 2025, a long-term resident's worldwide estate stays in UK scope, so the Foundation only helps a family that has genuinely left the UK (GOV.UK, 2026).

How do you choose between a FIC, a trust and a Foundation?

Start with one question: are you staying UK-resident? Roughly 23,000 former remittance-basis users are now weighing their options after the 2025 reform, and the right structure splits cleanly on residence (GOV.UK, 2026). Stay in the UK and the choice is FIC versus trust. Genuinely leave for the UAE and the Foundation enters the picture. Get the residence question right first; everything else follows from it.

If you are staying in the UK

Choose on what you value most. A FIC fits a family that wants voting control plus tax-efficient compounding, accepts that the shares stay in the estate, and does not need to draw heavy income out. A relevant-property trust fits a family that wants trustee discretion and asset protection, will accept the 20% entry charge above the nil-rate band and up to 6% every ten years, and values the CGT holdover on the way in. Many families combine the two, with a trust holding shares in a FIC. That hybrid is firmly advice territory.

If you have genuinely relocated to the UAE

Only then does the Foundation lead. Once UK residence is broken and the IHT tail has run, a UAE Foundation offers succession, asset protection and 0% UAE tax in an ownerless structure, usually paired with a holding company. The remaining choice, DIFC or ADGM, turns on banking, cost and governance, and belongs in its own analysis. None of this is a do-it-yourself exercise. Share valuations, the seven-year clock and anti-avoidance rules all need a regulated adviser, so the right next step is to talk to Ancova about protecting your family's wealth before you commit to any structure.

Citation capsule: The decision splits on residence: staying UK-resident means choosing between a FIC for control and compounding and a relevant-property trust for discretion and asset protection, while a UAE Foundation only leads once a family has genuinely relocated and broken UK residence (GOV.UK, 2026). Around 23,000 former remittance-basis users are reassessing their structures after the 2025 reform.

Decision tree: FIC, trust or UAE Foundation If you are staying UK-resident, control and compounding points to a FIC and discretion and asset protection points to a trust; if you have genuinely relocated to the UAE, succession with zero tax points to a UAE Foundation, with the DIFC versus ADGM choice handled separately. Which structure fits your family? Staying UK-resident? residence decides first Yes No (relocated) What do you value most? FIC control + compounding Trust discretion + protection Succession + 0% tax + ownerless structure? UAE Foundation DIFC vs ADGM is a separate decision While UK-resident, the FIC and trust rules dominate; the Foundation leads only after genuine relocation. Source: GOV.UK residence-based IHT, 2026
Decision tree: residence decides first. Staying UK-resident means FIC versus trust; genuine relocation to the UAE brings the Foundation into play, with the DIFC versus ADGM choice handled separately. Source: GOV.UK, 2026.

Frequently asked questions

Does a family investment company avoid inheritance tax?

No. A FIC is not an inheritance-tax silver bullet: the shares stay in the shareholders' estates and are taxed at 40% on death, with a possible minority discount but no exemption (GOV.UK, 2026). The saving comes from the gift, a potentially exempt transfer with a seven-year clock, plus the share-class growth freeze, not the company wrapper.

What tax does a family investment company pay?

A FIC pays corporation tax of 19% on profits up to GBP 50,000 and 25% above GBP 250,000, with marginal relief between, and dividends it receives are corporation-tax exempt (GOV.UK, 2026). Extracting profit is double-taxed: corporation tax inside, then dividend tax of 10.75%, 35.75% or 39.35% from 6 April 2026 (GOV.UK, 2026).

Is a FIC better than a trust?

Neither is universally better. A FIC avoids the trust's 20% entry charge above the nil-rate band and up to 6% every ten years, but its shares stay in the estate at 40% and it gets no CGT holdover (GOV.UK, 2026). A trust keeps assets outside the estate and offers discretion and holdover, at the cost of those charges. The right choice depends on what you value.

Did HMRC approve family investment companies?

Not exactly. HMRC ran a dedicated FIC unit from 2019, wound it up in 2021, and found no correlation between FICs and tax avoidance (Kingsley Napley, 2021). That is reassurance that FICs are treated as business as usual, not a clearance or blanket approval. Ordinary anti-avoidance rules, including the settlements legislation, still apply.

Does a UAE Foundation remove UK inheritance tax?

Not while you are UK-resident. Since 6 April 2025 the UK taxes inheritance on residence: a long-term resident, broadly UK-resident in 10 of the previous 20 tax years, keeps their worldwide estate in scope (GOV.UK, 2026). A UAE Foundation only helps once a family has genuinely relocated and broken UK residence, and a tail can follow for several years.

Sources

General information current to June 2026; take regulated advice. This article is not personalised tax or legal advice.

Read more