Setting Up a Family Investment Company in the UK: Key Legal Considerations - Jonathan Lea Network

Setting Up a Family Investment Company in the UK: Key Legal Considerations

When establishing a Family Investment Company (“FIC”) in the UK, it is important to address a range of legal and tax matters to ensure the structure is compliant, efficient, and suitable for long-term wealth planning.

Corporate Structure and Articles of Association

Customisation: The FIC should be set up with customised Articles of Association that clearly define the rights attached to different classes of shares. This enables the specific allocation of voting and income rights across family members.

Share Classes: Multiple share classes (for example, voting and non-voting shares) allow for control to be retained by the founders while gradually involving the next generation. However, control is determined not only by shareholding but also by relevant directors actions and the terms of shareholder agreements.

Director Roles: The Articles should specify the roles and powers of directors; this can allow founders to retain operational control even where shares have been gifted or transferred.

Shareholder Agreements

Governance: A shareholder agreement should set out clear rules for how the company is managed and how decisions are made. It can include processes for voting, dividend policy, dispute resolution, and restrictions on share transfers. Unlike the Articles of Association, the shareholder agreement is a private document and is not filed with Companies House.

Family Protections: Clauses may be included to ensure that shares remain within the family. This can be achieved through pre-emption rights or restrictions in the event of divorce, bankruptcy, or creditor claims.

Tax Implications

We are not tax experts and recommend speaking to a qualified tax advisors on all tax implications for you and your family members. We can recommend professionals to assist with the tax considerations for your plans.

Below are a few (but not the only) topics to consider in detail with your tax and financial advisors.

Topic: To discuss (for starters) with your tax and financial advisors:
Corporation Tax: A FIC would be subject to corporation tax on its profits. This can be advantageous compared to personal income tax, particularly for higher-rate taxpayers. A review of your own personal circumstances is highly recommended.
Capital Gains Tax (CGT): Transferring assets into the FIC may trigger a CGT charge based on current market value. Tax reliefs may or may not be available and you should discuss what, if any, reliefs may be available to you (and whether they extend to your investment company).
Inheritance Tax (IHT): Gifting shares in the FIC to family members may reduce IHT exposure if the donor survives seven years from the date of the gift. However, there are detailed rules on this and whether the gift could be caught by the gift with reservation of benefit (GWR) rules.
Dividends and Income Tax: Dividends paid from the FIC are expected to be taxed as personal income. Consider the share structure design to improve tax efficiency and consider which family members are in lower tax brackets. A commercial basis needed for any such planning and consideration of the settlements legislation is needed.

Regulatory Compliance

Company Registration: The FIC must be registered with Companies House and comply with statutory obligations, including filing annual accounts and submitting confirmation statements.

Director Duties: Directors are subject to duties under the Companies Act 2006. These include (but are not limited to) acting in good faith in the best interests of the company, exercising independent judgment, and avoiding conflicts of interest.

Financial Reporting: Proper records must be maintained at all times. Major decisions such as dividend declarations or asset transfers must be recorded in board minutes or formal resolutions in accordance with company law.

Legal Documentation and Structuring

Funding the Company: The method of funding the FIC should be carefully planned. Contributions may be made through cash, loans, or asset transfers. Asset transfers can trigger CGT or Stamp Duty Land Tax (SDLT); loans may be structured as interest-bearing, which can provide founders with an ongoing income stream without transferring capital.

Trusts versus FICs: Choosing between a trust and an FIC depends on the family’s priorities. FICs generally offer more control and flexibility in management and investment decisions. However, trusts can provide stronger asset protection and immediate IHT advantages, particularly when used with discretionary structures.

Professional Advice

Legal and Tax Advisors: Specialist advice is essential throughout the process. Legal and tax professionals will ensure that the FIC is structured effectively and remains compliant with evolving legislation.

Regular Reviews: The FIC structure should be reviewed periodically. Reviews should be undertaken annually or when significant events occur, such as tax law changes, family events (e.g. births, marriages, divorces), or material changes to the company’s assets or operations.

Conclusion

Establishing an FIC involves complex legal, tax, and regulatory considerations. When structured and managed appropriately, an FIC can offer tax efficiency, maintain control within the family, and support long-term wealth management goals.

How we can help

If you require help with setting up a Family Investment Company in the UK or require any legal advice, we offer a no-cost, no-obligation 20-minute introductory call as a starting point on the legal considerations and in some cases where appropriate, a fixed fee appointment.

We can also recommend suitable tax, financial and/or accounting professionals to assist with the additional tax and financial considerations as part of your plans.

Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible. After this call, we can then email you a scope of work, fee estimate, and confirmation of any other points or information mentioned on the call.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited. 

Image by Marcelo Russo de Oliveira – Coffee Tips Welcome from Pixabay

About Liam Mulvee

Liam has great experience as a corporate lead and from early on in his career has managed a case load of mergers & acquisitions for a variety of clients, primarily in the Healthcare sector (including dental, veterinary, retail pharmacy, opticians and care homes).

Having worked in the financial industry, Liam went on to train at a commercial law firm in central London. Since qualification, Liam has represented clients in various commercial and corporate matters in many sectors, with significant experience acting for buyers and sellers on both acquisitions and disposals of businesses and companies. Liam has also acted for banks and other finance lenders to assist in completing their security requirements in the support of a number of transactions.

The Jonathan Lea Network is an SRA regulated firm that employs solicitors, trainees and paralegals who work from a modern office in Haywards Heath. This close-knit retain team is enhanced by a trusted network of specialist self-employed solicitors who, where relevant, combine seamlessly with the central team.

If you’d like a competitive quote for any legal work please first complete our contact form, or send an email to wewillhelp@jonathanlea.net with an introduction and an overview of the issues you’d like to discuss. Someone will then liaise to fix a mutually convenient time for either a no obligation discovery call with one of our solicitors (following which a quote can be provided), or if you are instead looking for advice and guidance from the outset we may offer a one-hour fixed fee appointment in place of the discovery call.

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