The extension of family investment companies

The concept of the Family Investment Company (FIC) has gained increasing prominence in estate planning conversations, particularly in the context of intergenerational wealth preservation and tax efficiency. Traditionally, FICs were primarily associated with families who either had significant wealth or had transitioned from operating a trading business to managing substantial liquid assets, typically following the sale of a family business. For those families, this introduced a new challenge. While shares in a qualifying trading company could be transferred to the next generation free of Inheritance Tax (IHT) under the current rules, liquid assets such as cash were fully exposed to the 40% IHT charge. Further, the Capital Gains Tax uplift on death effectively wiped out any accrued gains in company shares, further enhancing the appeal of retaining business assets until death. 

However, a significant change is on the horizon. From 6 April 2026, under proposed reforms to the IHT regime, the existing 100% relief on qualifying business assets will be curtailed. A new £1 million allowance will be introduced, beyond which only 50% relief will apply. This change may give rise to considerable tax exposure upon the death of a shareholder where previously no IHT liability arose. 

Therefore, families owning trading companies must now reassess their succession and estate planning strategies. The conversations, once often confined to FIC structuring, will become equally vital for trading companies seeking to navigate the new tax landscape and ensure continuity across generations without significant tax leakage. 

A number of structuring options may now require consideration. 

• New share classes: founders and senior family members might opt to issue new classes of shares with tailored rights. For instance, shares might carry economic benefits, such as rights to income and capital, without conferring voting control. However, creating shares with differing rights may present complicated valuation issues. 

• Growth shares: many family businesses are also exploring growth shares as a strategic mechanism to freeze the current value of the business for existing shareholders. Any future appreciation, often triggered beyond a predefined hurdle, may be allocated to younger family members, thereby containing IHT liabilities. 

• Trust structures: trusts are poised to play a more prominent role in succession planning for family businesses. They allow for the gifting of shares for the benefit of future generations, while enabling the donor to retain influence as trustee should this be desired. Importantly, trusts provide additional layers of protection in cases such as matrimonial breakdown or creditor claims. They also allow for the income to be used flexibly for younger generations, for example, to meet educational costs or to top up the income of a family member who may have recently moved out of the family home. 

Regardless of the structure adopted, and whether shares are gifted directly to the next generation or to trustees, the implementation of a robust shareholders’ agreement is critical. A well drafted shareholders’ agreement has long played a vital role in the governance of FICs. Such agreements will now be important in regulating the relationships within trading family businesses where it is proposed that shares are held by a wider class of family members. A well drafted agreement can establish agreements as to voting, matters requiring founder consent, decision-making thresholds, transfer restrictions, and obligations among shareholders, supporting generational alignment and managing control. 

It is becoming increasingly evident that family businesses must take a more proactive stance on succession planning, bringing these discussions forward with some urgency. As Inheritance Tax reliefs on qualifying business assets diminish, the strategies once primarily associated with FIC structures are now vital for safeguarding the business. These strategies are designed to facilitate a smooth transition of ownership across generations whilst at the same time managing control in a way acceptable to the current generation actively working in and growing the business. 

From tailored share classes and growth shares to trust-based solutions, families must now consider these issues as part of their estate planning and to mitigate any IHT on business assets. Ultimately, those who proactively adapt to these reforms will be best positioned to protect both the legacy and longevity of their family businesses, ensuring they thrive across generations.