This distinction is critical. Getting it wrong can result in income or gains being taxed on the parents, even though the child legally owns the shares.

Key Takeaways

  • A Family Investment Company can issue income or growth shares to minors.
  • Gifts by parents are caught by the parental settlement rules.
  • Gifts by grandparents are not caught by these rules.
  • Parents should not generate income or realise gains for minor children.
  • Grandparents can fund education and living costs via FIC distributions.
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Definitions and contrasts

Family Investment Company (FIC)

A UK limited company used to hold and grow family wealth. Different share classes control income, growth, and voting rights.

Income shares

Shares that receive dividends from company profits.

Growth shares

Shares entitled to future capital growth, usually realised on a sale or liquidation.

Parental settlement rules

UK tax rules that tax income or gains on a child’s assets back on the parent if the parent provided the original gift.

When parents set up an FIC with shares for their children

When parents gift shares in an FIC to their own minor children, any income or realised gains are taxed as the parents’ own income.

This applies whether the shares are income shares or growth shares.

What this means in practice
  • Dividends paid to minor children are taxed on the parents.
  • Capital gains realised for minor children are taxed on the parents.
  • Only the first £100 of income per child per tax year is exempt.

This exemption is too small to be relevant for meaningful planning.

How parents can still use FICs for minors

Parents can issue income or growth shares to minor children provided no income or gains are generated while the children are under 18.

In practice, this means:

  • Allowing value to accumulate within the company.
  • Deferring dividends and exits until the child is 18 or over.

This approach is commonly used to fund university costs or early adulthood expenses once the child becomes an adult taxpayer.

When grandparents set up an FIC with shares for grandchildren

The position is very different when grandparents make the gift.

The parental settlement rules do not apply to gifts from grandparents, aunts, uncles, or other relatives.

What grandparents can do
  • Issue income shares to minor grandchildren.
  • Pay dividends while the grandchildren are under 18.
  • Issue growth shares and realise gains while they are minors.

The income and gains are taxed on the child, not the parents.

Practical uses

This structure is frequently used to:

  • Pay private school fees
  • Fund living costs or holidays
  • Provide regular financial support without burdening parents

Dividends can be paid directly to schools or service providers.

Expert perspective: What most families get wrong

The most common mistake is assuming that legal ownership determines tax treatment.

In reality, who made the original gift is what matters. Parents often unintentionally trigger avoidable tax charges by paying dividends or realising gains too early.

Timing and control are more important than complexity.

Practical planning checklist

Before issuing shares to minors in an FIC:

  • Confirm who is making the gift
  • Decide whether shares are income or growth focused
  • Restrict distributions for parent-funded shares until age 18
  • Document dividend and exit policies clearly
  • Review interaction with inheritance tax planning

What to Avoid

  • Paying dividends to minor children from parent-funded shares
  • Realising capital gains for minors before age 18
  • Using FICs without aligned legal and tax advice
  • Treating FICs as short-term cash extraction vehicles

Conclusion

Family Investment Companies can be highly effective for intergenerational planning, including for minors. The structure works well, but only when the tax rules are respected.

The difference between parents and grandparents is decisive. Proper design and disciplined timing are essential to avoid unnecessary tax exposure and to preserve long-term family wealth.

Professional advice is essential before implementation.

Important note — who does what

At Bluebond, we design the FIC structure and share classes for tax purposes. The company incorporation and share issue itself is arranged through a firm subject to the appropriate AML supervision.

Disclaimer. The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. UK tax legislation changes frequently, and the specific application of any rule or strategy depends on individual circumstances. Figures, thresholds, and reliefs mentioned are correct as of the 2026 to 2027 tax year unless otherwise stated. Before acting on any information here, consult a qualified adviser who has reviewed your full situation. Bluebond Tax Planning provides personal recommendations only under a signed client agreement, following a full review. Bluebond Tax Planning operates under UK legal frameworks and recognised professional conduct standards. Tax planning and legal work are not FCA regulated.

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