The downsides of a family investment company, honestly.

The family investment company has become the default suggestion in post-exit conversations. Sell the business, set up a company, issue the children their share class, let the portfolio roll up inside. The pitch is smooth, and parts of it are true. But the structure carries costs that the one-page summaries skate past, and in 2026-27 those costs are heavier than they were.

Start with the headline number. GOV.UK's corporation tax rates guidance sets the main rate at 25% for 2026-27, and a company that exists mainly to hold investments pays it on all of its profits, from the first pound. The Carry's reading of this year's rate cards is that a FIC is a structure you pay for twice, and the price only makes sense if control is what you are actually buying. How it compares with a trust is a separate piece; this one is the honest case against, and what still stands after it.

Two tax charges on one pot of money. What the second one buys is the whole question.

Why does a family investment company pay 25% tax on all its profits?

Because of what it is. A FIC is almost always a close company, meaning one controlled by five or fewer people or by its directors, and a close company whose business is wholly or mainly making investments is a close investment-holding company, or CIHC. That classification has one blunt consequence. GOV.UK's corporation tax rates for 2026-27 give ordinary companies a 19% small profits rate on profits up to £50,000 and marginal relief up to £250,000, but a CIHC gets neither. It pays 25% on everything. Companies mainly letting commercial property are the main exception; a share portfolio is not.

There is one big carve-out, and it runs in the company's favour. Dividends a UK company receives are largely exempt from corporation tax, so a FIC built around dividend-paying shares collects that income with little tax inside. Interest and realised capital gains get no such treatment and are taxed at 25% as they arise. The mix of your portfolio, in other words, decides how much the drag really costs. The plain personal-versus-company arithmetic is covered in a separate guide; this piece is about the family structure built on top of it.

What is the double tax charge on getting money out?

Profits taxed inside the company are taxed again when they reach a shareholder. That is the double charge, and it is the FIC's central weakness. GOV.UK's tax on dividends guidance for 2026-27 sets the dividend allowance at £500 and the rates above it at 10.75% for basic-rate taxpayers, 35.75% at higher rate and 39.35% at additional rate, after rises to the basic and higher bands in April 2026.

Follow £100 of interest through the structure. Corporation tax at 25% leaves £75. Pay that £75 out as a dividend to an additional-rate shareholder and dividend tax at 39.35% takes £29.51 more, leaving £45.49. The combined take is over 54p in the pound, and the £500 allowance barely dents it for a portfolio of any size. Money that stays inside and rolls up avoids the second charge entirely, which is why the structure suits accumulation far better than income.

Dividends are not the only exit. The table above puts the three main routes side by side. Salary works only where a family member genuinely runs the company, and carries National Insurance. Winding the company up normally gets capital treatment on the final distribution, but it ends the structure, costs professional fees, and sits inside targeted anti-avoidance rules that can tax some distributions as income. None of the doors out is free.

What does a family investment company cost to run?

More than a personal portfolio, in money and in disclosure. The set-up alone usually needs bespoke articles of association and several share classes drafted by a solicitor. After that the meter keeps running.

• Accounts and filings. Annual accounts, a corporation tax return and Companies House filings, every year, with an accountant's fee attached.
• Public disclosure. Companies House publishes the company's accounts and its people with significant control. A FIC is far more visible than a personal portfolio, which surprises families who chose it partly for discretion.
• Governance. Board minutes, dividend paperwork and loan-account records need keeping properly, because sloppy paperwork is what HMRC challenges first.
• Advice. Share-class design, settlements-rule questions and extraction planning all sit in adviser territory, billed accordingly.
• One cost it avoids. The annual tax on enveloped dwellings applies to UK residential property held in companies, not to shares, so a pure share FIC stays outside it.

What does a FIC still do well?

Control, mainly, and it does that better than most alternatives. Alphabet share classes let one generation keep the votes while value builds up in shares the children hold, which is the whole architecture of most FICs. A parent can chair the board, set the dividend policy and decide when anyone sees a penny, long after most of the economic value has moved on.

The tax side is not all drag either. The dividend-received exemption means an equity-income portfolio compounds inside the company with little corporation tax on its main return. Succession can be built in stages too: shares given away are potentially exempt transfers, out of the giver's estate if the giver survives the gift by seven years under GOV.UK's inheritance tax rules. Dividends can also be pointed at family members on lower tax rates, though HMRC's settlements rules police that ground closely and it is exactly where specific advice earns its fee.

When does the tax drag outweigh the control benefit?

Broadly, when the money has to come out. A FIC rolling up dividends for twenty years barely feels the 25% rate; a FIC funding school fees every term pays the double charge on every extraction. The questions that decide it look like this.

• How much of the expected return is dividends, which the company receives largely tax-free, and how much is interest and gains, taxed at 25% as they arise?
• Will the family need regular money out, or is this genuinely a rolling-up vehicle for the next generation?
• Is control the point? If a simpler route would meet the tax goals, the FIC's costs are buying governance, and that has to justify itself on its own terms.
• Who runs it in twenty years, and what does unwinding cost if the family changes its mind?
• What would the same goals cost in a trust, or in plain personal holdings? And if the sale has only just completed, the wider option map is in our post-exit guide.

What this article will not do is answer those questions for you. Whether a FIC fits is a question for regulated advice, not for a blog, and the rates above change with each Budget. This is general information, not financial or tax advice: confirm the current position on GOV.UK and take advice from an FCA-regulated adviser or a STEP solicitor before building, or unwinding, anything.

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