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Family Investment Companies

Family Investment Companies

22 February, 2018

Family investment companies are fast becoming a popular alternative to trusts in wealth and succession planning, but what are the benefits and when should they be considered? Ocorian's Amy Collins compares the options.

What are Family Investment Companies?

A family investment company is any company used by a family in their wealth or succession planning. Their use has grown significantly in recent years, particularly in instances where it is difficult for individuals to pass value into a trust without immediate tax charges but there is a desire to continue to have some control or influence over the family's wealth protection.


  • Bob and Margaret have built up significant funds through their trading business that was realised some years ago. They now feel ready to pass on their wealth to their grandchildren but do not believe that giving them significant funds in their own name at too young an age is a good idea.
  • If they are deemed domiciled in the UK, a transfer into a trust could give rise to an immediate inheritance tax charge of 20%. Whereas, the use of a family investment company may allow for a gift as a PET and therefore no inheritance tax liabilities are triggered unless there is a death within seven years.


How do Trusts and Family Investment Companies differ? 

Below is a comparison of key features and benefits to individuals, assuming that individual is not actually or deemed to be UK domiciled.

  Trust Family Investment Company
Who's in control? Controlled by the trustees. Controlled by the directors.
Who benefits? The value of the trust fund is for the benefit of the beneficiaries. The value of the entity belongs to the shareholders.
Flexibility around payments? Typically, a trust will be discretionary, so that the trustees have discretion over what payments, if any, are made to beneficiaries. Shareholders hold shares, which may be of different classes and which may allow dividends to be paid to shareholders. It is difficult to change interests after inception without tax consequences and therefore, the interests associated with each shareholder may be considered less flexible than a trust.
Can you roll up income and gains? It is possible to roll up offshore income and gains within a trust. Tax is paid when amounts are distributed to UK resident beneficiaries, chargeable to income tax to the extent there is accumulated income in the structure and capital gains tax if there are gains in the structure.

A family investment company can roll up income and gains, however, to the extent the person who established the company still has an interest, income tax would be payable on an arising basis.

It is also possible for the company to be incorporated offshore with UK directors. This would give rise to a corporation tax liability at company level but then no further taxes at shareholder level until amounts are distributed from the company.

Laws in place? Long established jurisprudence in family law and probate situations. Position continues to evolve. Company law is well established.
Governed by? Governed by a trust deed and a letter of wishes, both of which in most instances are considered to be private documents. Governed by articles and shareholders agreement. The articles of a company are, in many jurisdictions, a public document and therefore any matters of a sensitive nature will generally be included in a shareholders agreement.
Registration requirements? There is a requirement for any trusts with a UK tax obligation/liability to be included on a register of trust beneficial ownership. This private register is maintained by the HM Revenue & Customs in the UK. Shareholders of Jersey companies are included on a beneficial ownership register maintained by the Jersey Financial Services Commission. Unlike the UK persons of significant control register, this is a private register.
Taxed in Jersey? No tax in Jersey on income or gains. No tax in Jersey on income or gains.


Why use a non-UK company?

The shares in a non-UK company are not a UK situs asset. If the non-UK company is a private Jersey company it does not need to file accounts. Whilst there is a beneficial ownership register for companies in Jersey, this is private and not searchable by the public.

Contrast this with a UK company which would file accounts on public record, whose directors and shareholders would be listed on Companies House, a free searchable website, and whose shareholders would have a UK situs asset regardless of where in the world they live.

Additionally, family investment companies are becoming very popular in the UK, particularly amongst UK residents and domiciled individuals. This is largely due to the ability to roll up income and gains having paid only corporation tax (or if all income is dividends, then no tax).

Whilst the rules for non-UK companies might initially be considered more penal than UK companies in some circumstances, the rules are well understood and therefore can be planned for as appropriate.

Of course, if you do not have a UK tax position to worry about, a family investment company may simply be more familiar and better understood than a trust for your families' wealth planning and asset protection.

If you'd like to know more about Ocorian's full range of Private Client and Family Office services, please contact our dedicated and expert team.