Family Investment Companies Or Trusts: Which Structure Makes Sense For You?

For families with significant assets, deciding how wealth should be held and passed on can be as important as deciding how it is invested. Questions about tax are often part of that conversation, but they are rarely the whole story. Issues such as control, family governance and long-term succession planning tend to be just as important.

There are two structures that frequently arise in these discussions: trusts and Family Investment Companies (FICs). Both are widely used within UK private wealth planning, yet they operate in very different ways. As the inheritance tax landscape continues to evolve, many families are looking more closely at which of these structures best reflects their long-term objectives.

Trusts

Trusts remain one of the most established tools in UK estate planning, but they are often misunderstood.

At their core, trusts separate legal ownership of assets from the right to benefit from those assets. When a trust is created, the person establishing it (the settlor) transfers assets to trustees, who become the legal owners of those assets. The trustees must then manage those assets for the benefit of the beneficiaries, in accordance with the terms of the trust deed and their fiduciary duties.

Once assets have been transferred into trust, they no longer belong to the settlor personally. Instead, they are held and managed by trustees who must act in the best interests of the beneficiaries.

For many families, this structure provides a way of introducing an element of protection and stewardship around family wealth. Trustees can exercise discretion over when and how beneficiaries receive funds, allowing the trust to respond to changing circumstances within the family. This flexibility can be particularly valuable where beneficiaries are younger, where wealth is intended to support several generations, or where there are concerns about how assets might be managed if passed outright.

It is also important to understand that transferring assets into certain types of trust can trigger an immediate inheritance tax charge. Where the value transferred exceeds the current nil-rate band of £325,000, a 20% lifetime inheritance tax charge may apply when assets are settled into a discretionary trust.

Trusts within the relevant property regime may also face periodic inheritance tax charges, typically assessed every ten years. These charges can be up to 6% of the value of the trust fund, depending on the circumstances.

While trusts remain an important planning tool, these tax considerations are one reason why families sometimes explore alternative structures.

However, the central feature of a trust is the transfer of ownership and control. Once assets are placed into trust, the settlor must accept that the trustees ultimately control how those assets are managed. For some families, that separation of ownership and decision-making is precisely what they want. For others, it may feel like a step too far.

Family Investment Companies

Family Investment Companies take a different approach. Rather than separating ownership from benefit, they use a corporate structure to organise family wealth.

Typically, a private company is established to hold investments such as property, shares or other financial assets. Family members hold shares in the company, often through different share classes designed to reflect different rights.

In many cases, founders retain voting shares, allowing them to control investment decisions and the strategic direction of the company. Other family members may hold non-voting shares, enabling them to benefit from the future growth of the company without necessarily being involved in day-to-day decision-making.

This structure allows economic value to begin moving to the next generation while maintaining a clear governance framework around how family assets are managed. For families accustomed to business structures, the company model can feel familiar and transparent.

Unlike transfers into many types of trust, funding a Family Investment Company does not normally give rise to an equivalent upfront inheritance tax charge, which is one reason why FICs have gained attention as part of modern estate planning strategies.

In practice, FICs often appeal to families who want to begin transferring wealth while still remaining actively involved in investment decisions and the overall direction of family assets.

How Changes To Tax Reliefs Are Influencing The Discussion

The renewed attention on trusts and Family Investment Companies has also been influenced by changes to the inheritance tax landscape.

Historically, certain investments qualified for Business Relief, allowing them to pass to the next generation with up to 100% inheritance tax relief if the relevant conditions were met. This made those investments particularly attractive within inheritance tax planning strategies.

Under the Government’s recent reforms, however, the amount of Business Relief available is now subject to a cap of £2.5 million per individual. Assets above that threshold will receive reduced relief, meaning the excess value may face an effective inheritance tax charge of 20% rather than being fully exempt. The allowance is transferable between spouses or civil partners, meaning that a couple may potentially benefit from a combined allowance of up to £5 million.

As these changes move through the final stages of the legislative process, many families are reconsidering how heavily they rely on Business Relief within their inheritance tax planning. Rather than depending on a single relief or investment, attention is increasingly turning to the long-term structure through which wealth is held.

Control, Governance And Family Dynamics

While tax considerations often prompt the initial discussion, the practical differences between trusts and Family Investment Companies usually become clearer when families consider how decisions should be made in the future.

Trusts place decision-making authority primarily in the hands of trustees, who must act in accordance with the trust deed and their fiduciary duties. This can provide a strong framework for stewardship, particularly where assets are intended to benefit several generations or where independent oversight is considered important.

Family Investment Companies, by contrast, often allow founders to retain a more direct role in governance through voting shares and board positions. Investment decisions remain within a corporate structure, allowing the founding generation to continue guiding how family wealth is managed.

In practice, the choice often depends on the circumstances of the family. Where beneficiaries are younger, vulnerable, or where there are concerns about how wealth might be managed if passed outright, a discretionary trust can provide a valuable layer of protection through independent trusteeship. By contrast, where founders wish to remain actively involved in investment decisions while the next generation gradually builds experience, the governance structure of a Family Investment Company may feel more appropriate.

Choosing The Right Structure For Your Family

There is rarely a single “correct” structure for organising family wealth.

For some families, trusts offer the protection and long-term stewardship they are looking for, particularly where wealth is intended to support several generations or where beneficiaries may not yet be ready to manage significant assets themselves.

For others, a Family Investment Company may provide a more practical framework, allowing investments to be managed collectively while gradually transferring economic value to younger family members.

In practice, these structures are not always used as alternatives. Some families choose to combine them within a wider estate planning strategy. For example, a Family Investment Company may be used to manage and grow family investments under the oversight of the founding generation, while shares in that company are held through trusts designed to benefit younger family members. This type of layered approach can allow families to balance governance, asset protection and long-term succession planning within a single framework.

Planning For A Changing Landscape

As the inheritance tax landscape continues to evolve, many families are reviewing long-standing planning arrangements. Reforms affecting Business Relief, alongside forthcoming changes to the inheritance tax treatment of certain pension benefits from April 2027, are prompting individuals to reconsider how their wealth is structured and transferred.

In that environment, the decision between a trust and a Family Investment Company is rarely about identifying a single “better” option. Instead, it is about choosing the structure that best reflects how a family wants its wealth to be managed, protected and ultimately passed on.

With careful advice and thoughtful planning, either structure can play an important role in ensuring that family wealth is preserved and transferred in a way that supports the long-term interests of future generations.