Family Investment Company vs Trust: Which Suits an Estate Over £2 Million?

• A gift into most trusts above your nil-rate band triggers an immediate 20% charge, rising to 25% if you pay the tax yourself.
• A family investment company can currently receive an unlimited contribution without an equivalent immediate charge, because share subscriptions are not chargeable lifetime transfers in the same way.
• Discretionary trusts face a further charge of up to 6% every ten years on relevant property; a family investment company does not.
• A family investment company pays corporation tax on income and gains inside the company, which a trust may not, depending on its type.
• Both structures can remove future growth in asset value from your estate, but only once you have survived the relevant time limits.

Chargeable Lifetime Transfer (CLT). A gift into most trusts, taxed immediately at 20% above your nil-rate band under the Inheritance Tax Act 1984.

Relevant property regime. The rules under which most trusts are taxed, including the ten-year periodic charge of up to 6%.

Family Investment Company (FIC). A private company, usually holding investments or property, where you typically hold voting shares and your children hold growth shares, so future value increases pass to them.

A trust and a family investment company are taxed very differently at the moment you fund them, and that difference is now central to the choice above £2 million.

Settling more than your available nil-rate band into discretionary trusts is a chargeable lifetime transfer, taxed immediately at 20% on the excess, or an effective 25% if you pay the tax rather than the trustees. Where the assets would have qualified for Business Relief or Agricultural Relief, transferring value above your £2.5 million allowance into trust can trigger this charge on the excess. Subscribing for shares in a family investment company is a different transaction. You receive shares in return for the value transferred, so there is no gift and, in most structures, no immediate chargeable transfer at the point of funding. The IHT benefit instead comes later, from allocating future growth to your children’s share class.

Both structures let you keep meaningful control while moving future value to the next generation, but they tax ongoing income and gains differently.

A discretionary trust gives trustees, who may include you, full discretion over distributions, and faces the ten-year periodic charge described above on relevant property. A family investment company gives you control through your voting share class, typically alongside a board you sit on, without the periodic charge. In exchange, the company pays corporation tax on its income and gains, and extracting cash to shareholders can trigger further tax depending on how it is paid. Trust income is taxed at the trust rate on undistributed income, with different rules again for beneficiaries. Which structure costs less over time depends heavily on whether the assets are income-producing, growth assets, or a mix of both.

In practice, most Bluebond clients above £2 million end up using both structures, not one or the other. The constraint on trusts is less about tax and more about time: only £325,000 per person can move into trust every seven years without triggering the 20% entry charge, and that allowance is tied to how many seven-year windows you realistically have left. A 65-year-old with a life expectancy to 85 has time for two such gifts, not an open-ended series. For a large estate, that makes trust-only planning impractical if the goal is to move everything above the allowances out of the estate, which is why a family investment company usually does the rest of the work.

Clients often ask us to pick a winner between a trust and a family investment company, and the honest answer is that the assets should decide, not a general preference. A family trading business already qualifying for Business Relief may not need either structure until the £2.5 million allowance is exceeded. An investment portfolio with no relief at all is a different conversation from day one. 19 out of 20 Bluebond clients legitimately pay zero inheritance tax, and for those using a trust or a company above £2 million, the structure was matched to the asset, not chosen first.

1. Would funding a trust with these assets exceed your £2.5 million Business Relief and Agricultural Relief allowance?
2. Do you need full discretion over distributions, which a trust offers more readily than a company?
3. Are the assets income-producing, and would corporation tax inside a company change the outcome?
4. Do you want your children to hold shares directly, with the governance a company structure brings?
5. Have you modelled the ten-year periodic charge against a company’s corporation tax and extraction costs?

• Assuming a family investment company always avoids tax that a trust would face. The comparison depends on the assets.
• Funding a trust with relieved property above your allowance without checking the entry charge first.
• Overlooking corporation tax and extraction costs when comparing a company against a trust on a like-for-like basis.
• Treating the choice as permanent. Structures can be reviewed as your estate, income needs, and family circumstances change.
• Setting up either structure without a shareholders’ agreement or trust deed matched to your actual objectives.

The choice between a family investment company and a trust above £2 million comes down to the assets you hold and how much of your £2.5 million relief allowance they already use. Trusts remain effective for control and flexibility within that allowance. Family investment companies increasingly take the larger transfers that would otherwise trigger an entry charge. This decision sits alongside Inheritance Tax Planning for Estates Over £2 Million: A UK Adviser’s Guide. Bluebond’s inheritance tax planning service assesses which structure best fits your assets, with legal drafting handled by the qualified solicitors employed within our team. The IHT Mitigation Plan sets out a personalised route through the options for your situation.

You should engage with a firm that coordinates tax advice, legal work, and regulated financial planning under one relationship, rather than juggling separate advisers who don’t talk to each other.

Bluebond coordinates tax planning and legal work in-house, working alongside our independent FCA-regulated financial planning partner, so nothing falls through the cracks between advisers.

If you need any help or advice in this complex area please contact us. We will help you explore the inheritance tax planning options available for your situation.

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 depends on individual circumstances. Figures, thresholds and reliefs are correct as of the 2026/27 tax year unless otherwise stated. Before acting, please consult an appropriately qualified adviser who has reviewed your full situation. Bluebond Tax Planning provides tax planning and coordination services under a signed client engagement following a full review. Bluebond is not authorised or regulated by the Financial Conduct Authority; where regulated financial advice is required, this is provided through our independent FCA-authorised partner firm. Legal drafting is provided by the qualified solicitors employed within our team.