UK: Family Investment Companies

Last Updated: 12 September 2011
Article by Howard Bilton

Nobody likes to think about their own mortality. It is a surprising statistic that in the UK two thirds of the population die without leaving a will. I would presume that the figure in similar in other countries. In the majority of cases this is not the biggest problem in the world because there is not much of an estate to bequeath and what there is automatically goes to the next of kin- which, if they should care, is probably exactly in line with their wishes. For wealthier people, as typified by those who play golf or read golfing magazines, this is likely to be a major problem but such persons normally take a little more care over their wealth and how it is passed on.

The alternative to a will is a trust. Trusts can have huge advantages. They allow the distribution of the wealth to be controlled so that children get looked after but do not necessarily get a huge lump sum of cash which might cause them to go party mad and disincentivise them from having a career or job. Frequently wealthy bread winners want their spouse to be well looked after but they do not want to risk the spouse re-marrying and the new partner running off with all the money. They want the bulk of their capital to be preserved for the children or even grandchildren. All this can be achieved through trusts. Setting up a trust also forces the settlor to put his affairs in order early by transferring the assets to the trustees so that on death there is little or nothing to be done thereby saving those left behind the heartache, worry, expense and delays which are necessarily involved in administering an estate. Even a simple estate can cost up to 6% of its value in fees to administer and take a minimum of two years to get sorted. This is not attractive for anybody-apart from the lawyers. Trusts provide a means of avoiding all that.

The disadvantage of a trust is that it involves... well... a level of trust. Assets have to be passed over to trustees and the settlor loses control. In a previous article I wrote about the joys of private trust companies. These provide a method of setting up a trust and retaining a good degree of control. They remain attractive and are being used increasingly by the sophisticated client.

There is another option. This is being increasingly used by UK domiciled persons who are restricted in their ability to transfer assets into trust by the 20% lifetime inheritance tax charge which applies to substantial transfers. These entities will be attractive to a whole range of persons because they are simple and easy to understand and relatively simple to set up and administer. They are known as Family Investment Companies (FICs) in the UK. We also refer to them as common law foundations as they are similar to the civil law foundation found in Lichtenstein and elsewhere but are much easier to understand by those brought up by in a common law system.

FICs are a company. The usual form of a company is limited by shares. A share has three important characteristics being: a)The right to vote and therefore control the company; b)The right to receive income in the form of dividends; c) The right to the capital and the underlying assets owned by the company. Usually a share will carry all three rights but it is quite possible for it to carry only one or two of these three. By splitting the rights and obligations we can create interesting results.

For example, let us assume that Mr. A is an UK national living in Hong Kong. He does not intend to spend the rest of this life in Hong Kong so is almost certainly UK domiciled and subject to UK IHT on his worldwide estate. His first preference would be to pass the assets into trust to avoid UK IHT but he cannot do so as the transfer to the trust would attract the 20% charge. If he gives assets away to another individual seven years before his death then he avoids UK IHT and the 20% charge entirely but that would leave him without assets to look after himself and therefore reliant on his beneficiaries. He would also lose control of those assets. Neither is attractive. Instead we set up an FIC. Mr. A is issued with all the voting shares and therefore keeps total control. He also jointly retains, along with his wife, the income producing shares because although he does not envisage spending the capital he does want to ensure his lifestyle and spend the income. The capital shares can be given away to his wife and children whilst he is in good health. This structure means that all his assets are conveniently bundled together in one package so his executors do not have to try and find them, take control and administer them according to the will. UK IHT is massively reduced as he has given away the capital seven years before death. Clearly the income producing shares do have some value but it is minor compared to the capital shares. Sweet and simple.

This type of structure would be effective for most persons who are in danger of being subject to inheritance tax or estate duty in their home country or anywhere else in the world. There is no estate duty in Hong Kong but just because you are resident in Hong Kong does not mean you are exempt from estate duty everywhere else in the world. Assets are frequently charged to estate duty in their country of location irrespective of who owns them. If they are owned by a company then, because a company never dies, local estate duty is eradicated. Hong Kong residents will often have estate duty considerations in their own county of birth and anywhere they have invested but this type of structure can remove those liabilities.

The structure above will also be of relevance to those who have parents back in their home county with wealth to pass on. We frequently get asked about whether we can help reduce estate duties on their estate. Funnily enough the beneficiaries are often more concerned about this! For those living in the UK a trust is going to be unattractive because of the 20% charge. Giving away assets seven years before death is going to be unattractive because of the reasons I gave above i.e. loss of control and having to rely on relatives for future upkeep. There is nothing to stop a UK resident from setting up one of these structures. For most it will not give income or capital gain tax advantage without further planning but that is not the aim. It is a way of eradicating or considerably reducing estate duties.

The plan can further be refined by using a company limited by guarantee or a company limited by both guarantee and shares. Most people will be familiar with companies limited by guarantee even if they do not know it as this is the basis of most clubs and societies. When you join a club you become a member, rather than a shareholder , of a company limited by guarantee. That membership is retained only for as long as you are alive or for as long as the club (company) committee decides you are worthy and suitable and abide by the club rules. This type of company can be sued as an FIC. Using an FIC avoids the need for a will and probate on the underlying assets as they are all owned by the company. A probate is still required to pass on the voting and income producing shares. So if the votes and income rights are held by members rather than shareholders those rights would expire on the death of the owner and then new members could be elected with those rights thereby transferring them without the need for further procedure and the avoidance of probate entirely. Hybrid companies are able to issue both shares and memberships so the various rights and obligations can be mixed and matched between the two to create whatever result is required and suits the circumstances of the family.

This type of structure is the latest big news in UK estate planning but can be used by anyone anywhere else in the world to good effect. It doesn't remove the need for a will as there will always be personal assets outside the structure but it does provide a convenient and relatively cheap and simple method of dealing with the majority a person's estate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.