Family Investment Companies for Doctors and Consultants: What They Are and When They Fit

A family investment company (FIC) is a private limited company set up to hold and accumulate investments inside the family rather than to run a medical practice. For a consultant or GP whose income is already in the additional-rate band and who has surplus wealth to deploy beyond the NHS pension and personal ISA allowances, a FIC can retain investment income at corporation-tax rates of 19-25% instead of 45% personal income tax, and keep future growth outside the founder's estate for inheritance tax purposes. It is not, however, a structure for every doctor. A FIC does nothing for NHS pension accrual, does not qualify for Business Asset Disposal Relief, and the settlements legislation can eliminate the income-splitting advantage if the share structure is designed carelessly. This guide explains what a FIC is, how the tax works, the share-class mechanics, the IHT and settlements picture, and an honest answer to whether the running cost earns its keep for a high-earning medical professional.

What a family investment company actually is

A FIC is not a trading company and does not hold an NHS GMS or PMS contract. It is a bespoke private limited company designed to hold investments: UK equities, bonds, cash deposits, property or a combination. The company is owned by family members through different classes of shares carrying different dividend, voting and capital rights. The founding doctor typically holds shares with strong voting rights to retain control over investment decisions, while a spouse or adult children hold shares carrying dividend or capital entitlements with limited or no votes.

When the company receives investment income, it pays corporation tax at the rates applicable to companies. Shareholders receive income from the FIC as dividends, taxed at their individual rates. Because different shareholders have different tax rates, the structure allows income to flow to whoever can receive it at the lowest marginal rate in any given year. The IHT angle works because gifted shares, and future growth on those shares, sit with the shareholder recipients rather than in the founder's estate.

It is worth stating plainly what a FIC is not. It is not a trading company running a medical practice. It does not hold patients, does not employ clinical staff, and does not generate NHS contract income. Any comparison with a trading private-practice company, which can qualify for Business Asset Disposal Relief and for which the incorporation question is different, does not apply to a FIC.

Why a high-earning consultant or GP partner might look at one

Two income levels make a FIC relevant for doctors. The first is the additional-rate threshold of £125,140 (2025/26 and 2026/27): above that level, income tax is 45% and the personal allowance is entirely tapered away. A FIC retaining the same income at 19% corporation tax on the first £50,000 of profits saves 26 percentage points before extraction costs are considered, and the gap remains material even at the 25% main rate. The second is the annual allowance taper: where threshold income exceeds £200,000 and adjusted income exceeds £260,000, the annual allowance reduces from £60,000 towards a £10,000 floor (2026/27 figures, house_positions §2.B). Doctors at this level have significant private income alongside their NHS earnings and may have substantial surplus after funding the NHS pension and personal living costs.

A FIC is a wealth-structuring vehicle for this population: doctors who have already funded their NHS pension and used available carry-forward of unused annual allowance, and who have ongoing surplus that would otherwise compound inside a personal investment account at 45% or 39.35%. It is not the right tool for a doctor whose income is mainly NHS salary or GP partner drawings at the higher rate, where the NHS pension remains the primary savings vehicle and there is no material surplus to shelter.

How a FIC is taxed

The FIC pays corporation tax on its retained investment income. For accounting periods from 1 April 2026 the rates are 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief tapering between the two (standard fraction 3/200, effective rate around 26.5% in the band). The important practical point is that most UK dividends received by the FIC are exempt from corporation tax under the dividend-exemption rules (CTA 2009 Part 9A). A FIC invested primarily in UK equities and receiving UK dividends broadly pays no CT on those dividends: they accrue gross inside the company. Interest income, rental income and most overseas dividends are taxable at the full CT rates.

The 2026/27 rate stack on extraction

When income is eventually extracted from the FIC as dividends, shareholders pay dividend tax at 2026/27 rates: 10.75% ordinary (basic) rate, 35.75% upper (higher) rate, 39.35% additional rate, with a £500 dividend allowance (from 6 April 2026, Finance Act 2026 s.4, house_positions §5). These rates rose from 8.75% and 33.75% in 2025/26; the additional rate stayed at 39.35%. The 10.75% basic-rate band is the key opportunity: a spouse or adult child holding shares and receiving dividends within their basic-rate capacity is taxed at 10.75% rather than the founder paying 39.35%, a difference of 28.6 percentage points on extracted income.

The worked example below uses £50,000 of interest income (taxable inside the FIC at the full CT rate, not exempt) to show the four routes and their outcomes in 2026/27. All figures rounded to the nearest £10.

Route	Tax on £50,000 interest income (2026/27)	Net retained or received	Note
Additional-rate doctor, personally (45% IT)	£22,500	£27,500 personally	No deferral; compounding on £27,500
FIC retains (CT 19%, not extracted)	£9,500	£40,500 in company	Compounding on £40,500; extraction taxed later on the founder or a family member
FIC then extracts to basic-rate spouse	£9,500 CT + £4,300 dividend tax (10.75% on £40,000 after £500 allowance)	£36,200 net to spouse	Assumes spouse has basic-rate band capacity; savings of £8,700 vs personal route
FIC then extracts to additional-rate founder	£9,500 CT + £15,740 dividend tax (39.35% on £40,000 after £500 allowance)	£24,760 net to founder	Combined tax 50.5% on original income: worse than the 45% personal route; FIC adds no benefit here

The table makes the key point clearly. Retaining income in the FIC and deferring extraction beats the personal route by a wide margin. Extracting to a basic-rate family member is also materially efficient. Extracting straight back to the additional-rate founder is not: the combination of CT and the higher dividend rate produces a combined effective rate of around 50.5%, which is worse than paying the 45% personal rate directly. The FIC earns its keep through deferral and income redirection, not as a pass-through to the founder.

Share classes and family involvement

The share structure is where the planning flexibility lives. A FIC typically creates alphabet shares: A shares, B shares, C shares, each with distinct rights codified in the company's articles. The founding doctor usually holds A shares with full voting rights, preserving control over investment strategy and corporate decisions. Family members hold B or C shares with dividend entitlements and limited or no votes. This allows dividends to be paid to B shareholders independently, without requiring a simultaneous dividend to A shareholders, giving flexibility to direct income to whoever has the lowest marginal rate in a given year.

A genuinely employed spouse doing real work for the company at a commercial rate can also receive a salary, which is deductible for corporation tax on the wholly-and-exclusively basis (house_positions §5). That is separate from the spouse receiving dividends on their shareholding: salary requires real work at a market rate; dividends flow from share ownership. The two are often combined but must be kept distinct and properly documented.

For adult children, a FIC can be genuinely efficient: they receive dividends within their own basic-rate bands at 10.75% (2026/27). The parental settlement rule applies to unmarried minor children, which is covered in the traps section below.

The IHT angle

The IHT benefit works through gifting. If the founding doctor gifts FIC shares to family members as outright absolute gifts, those gifts are potentially exempt transfers (PETs) under the IHT regime: provided the founder survives seven years, the value transferred is outside the estate with no IHT liability. Future investment growth on those shares accrues to the shareholder recipients rather than to the founder's estate. Over decades, this can move substantial value down the family, particularly where the investments compound at a meaningful rate inside the company at the lower CT rate.

However, a FIC is an investment company, not a trading business, and this is critical for two reasons. First, Business Property Relief (BPR) is not available on FIC shares: BPR requires a qualifying interest in a trading business (a 100% BPR exemption), and an investment company does not meet that test. The BPR that applies to a trading-company shareholding does not extend to investment vehicles. Second, the gift-with-reservation rules apply if the founder retains a significant ongoing benefit from the company after gifting shares (for example, drawing a salary as a director, retaining a right to occupy company property, or holding rights over the gifted shares beyond normal governance control). HMRC can treat such a gift as a gift with reservation of benefit, keeping the transferred value in the taxable estate despite the gift having been made.

The practical upshot is that IHT planning via a FIC is a long game. PETs become fully exempt after seven years; a FIC set up at age 45 and maintained through to the founder's 70s can shift considerable value outside the estate, particularly if the investments grow strongly in the interim. A FIC set up five years before the founder's death captures relatively little of that benefit. The time horizon matters as much as the tax rate.

The traps: settlements legislation, minor children and the loss of BADR

The settlements legislation

The income-splitting benefit of a FIC depends on different shareholders genuinely holding independent rights. The settlements legislation (ITTOIA 2005 s.619 onwards) treats income arising under a settlement as the settlor's income if the settlor retains an interest in the settlement. Under s.624, if the founding doctor has any entitlement to benefit from the FIC (a right to dividends, salary, return of contributed capital, or similar), income paid to other family members can be taxed as the founder's income rather than the recipient's. This can eliminate the income-splitting benefit in its entirety.

The practical consequence is that the A shares (held by the founder) must carry rights the founder genuinely intends to keep and benefit from independently, while the B and C share classes must carry rights that are genuinely independent and not simply a repackaging of the founder's entitlement. This is primarily a drafting question requiring specialist legal input. A poorly constructed FIC, where the founder's retained rights are broad enough that the company is treated as a settlor-interested settlement, ends up taxing all income on the founder regardless of who receives the dividends. The articles and shareholders' agreement must be reviewed by a solicitor or tax adviser familiar with the settlements rules before the structure is finalised.

Minor children and the parental settlement rule

Under ITTOIA 2005 s.629, income arising under a parental settlement paid to an unmarried minor child is treated as the parent's income for tax purposes where that income exceeds £100 per year. A parent who funds a FIC from which an unmarried minor child holds shares and receives dividends will find that those dividends (above £100) are taxed on the parent as if the parent received them directly. The income-splitting benefit for minor children is therefore nil in practice. The rule falls away when the child turns 18 or marries. FIC planning for adult children can be genuinely efficient; FIC planning for children under 18 is not, and founders should not be sold the income-splitting story on the basis of minor beneficiaries.

Loss of BADR and BPR

An investment company does not qualify for Business Asset Disposal Relief. The BADR conditions require a trading business or trading company, held for the qualifying two-year period, with the 5% ordinary share capital, voting rights and economic-entitlement conditions met for a company disposal (house_positions §4). A FIC is an investment company by design: it does not carry on a trade. Any future disposal of FIC shares will therefore be taxed at the main CGT rates without the BADR reduction. Compare that to disposing of shares in a qualifying trading private-practice company: BADR at 18% from 6 April 2026 (house_positions §4) applies on the first £1 million of qualifying lifetime gains. The absence of BADR on a FIC is a permanent, structural cost that belongs in any comparison of investment routes, and it should be quantified, not glossed over, when a FIC is recommended.

BPR is equally unavailable on a FIC, for the same reason: BPR at 100% requires a qualifying trading business interest, not an investment vehicle. The IHT planning for FIC shares therefore rests entirely on PETs and the seven-year rule, not on any ongoing relief from holding the shares.

FIC vs a discretionary trust vs simply investing personally

Feature	FIC	Discretionary trust	Personal investing
Tax on retained income (non-dividend)	CT 19-25%	Trust income rate up to 45%	Income tax up to 45%
Tax on retained UK dividends	Broadly exempt from CT (dividend-exemption rules)	Up to 39.35% trust rate	Up to 39.35% additional rate
IHT treatment of transfer	PETs on gifted shares; exempt after 7 years	Chargeable lifetime transfer; entry charge above available nil-rate band; 10-year periodic IHT charge on trust assets	No transfer benefit; assets remain in estate
Business Property Relief	Not available (investment company)	Not available (investment vehicle)	Available on qualifying trading interests held personally
BADR on disposal	Not available (investment company)	Not applicable	Available on qualifying trading assets; not on investment portfolios
Control	Founder retains as director and A shareholder	Trustee control; settlor ordinarily excluded as beneficiary	Full personal control
Income splitting	Yes, to shareholders with lower marginal rates (subject to settlements legislation)	Yes, at trustee discretion to beneficiaries	No
Flexibility over beneficiaries	Fixed by share class; changes require new allotments	Wide trustee discretion over who benefits and when	Not applicable
Running cost	Moderate: annual accounts, CT return, legal setup, director governance	Moderate to high: trustee fees, trust accounts, tax returns, reporting to HMRC	Nil beyond personal accounts and ISA

The key differences stand out in the table. A FIC is materially more tax-efficient than a trust on retained undistributed income, particularly on UK dividends where the FIC's exemption from CT on those receipts is decisive. A trust pays income at the trust rate (up to 45% on income, up to 39.35% on dividends), which is similar to the personal rate and offers no compounding advantage. The trust's strength is beneficiary flexibility: trustees have wide discretion over who benefits and when, whereas a FIC's share classes are fixed at formation and changes require new share allotments. Trusts also face a periodic IHT charge every ten years on the trust assets above the available nil-rate band, which the FIC does not face on its retained assets during the holding period. For accumulation of wealth with income splitting across family members, the FIC is generally more tax-efficient at scale. For situations where the founder wants maximum flexibility over future beneficiaries and does not mind the periodic charge, a trust may suit better. Personal investing beats both on simplicity and cost, but at the additional rate there is a real long-run compounding cost from paying 45% on each year's income rather than 19-25%.

The NHS pension and the annual allowance taper

A FIC does nothing for NHS pension accrual. A company cannot hold an NHS GMS or PMS contract, and income retained inside or extracted from a FIC as dividends is not NHS-pensionable. For a consultant, only the NHS employment is pensionable; for a GP partner, only the NHS-derived profits certified on the Type 1 Annual Certificate of Pensionable Profits. Dividends are never pensionable income, for any doctor, regardless of which company pays them. The NHS Pension Scheme (2015 CARE section) accrues at 1/54th of pensionable earnings each year, and that accrual is genuinely valuable: a FIC does not add to it or protect it.

Where a FIC is sometimes associated with the annual allowance is in reducing future income drawn personally. A doctor who accumulates wealth in a FIC over many years and draws lower personal income can see lower adjusted income and threshold income, potentially reducing the taper bite. This is an indirect, long-run effect: the FIC does not directly reduce the pension input amount, which is the measure that triggers the annual allowance charge on a defined-benefit NHS pension. For the direct routes to managing the annual allowance charge, including Scheme Pays and carry-forward of unused allowance, see our guide on NHS pension tax charges and how to minimise them.

The honest framing is this: the FIC sits alongside the NHS pension as a separate wealth-building structure for surplus income that is already outside the pension, not as a tool that interacts with or improves the pension position. Always model the pension and the FIC as separate decisions, not as alternatives.

Is a FIC worth the running cost? An honest read

A FIC has real setup and running costs. Specialist company formation (bespoke articles of association with multiple share classes, a shareholders' agreement, and legal advice on the settlements risk) typically costs several thousand pounds at the outset. Annual accounts, a corporation tax return and any PAYE administration add to the ongoing costs each year. These are materially higher than the costs of a straightforward one-director limited company, because the structure is more complex and requires active governance: director minutes, dividend documentation, shareholder register maintenance and an awareness of the settlements rules every time a dividend is declared.

Against those costs, the tax benefit only materialises on retained income that stays inside the company rather than being immediately extracted to the founder. The FIC is not efficient for a founder who takes the income out each year: as the worked example shows, extracting back to an additional-rate founder at combined CT and dividend rates of around 50.5% is worse than paying 45% personally. The structure earns its keep where:

• There is genuine surplus, several tens of thousands of pounds per year or more, that can be left to compound inside the company over years rather than months.
• Family members (a spouse with lower income, adult children) hold shares and can receive dividends at lower marginal rates, so extraction is genuinely tax-efficient when it happens.
• The founder has a real IHT goal, is prepared to gift shares and can realistically survive seven years for PETs to become fully exempt.
• The time horizon is long: a FIC set up at age 45 and maintained for 20-plus years captures material compounding and IHT benefit; one set up five years before planned retirement captures relatively little.

For a consultant at 45 with growing private income, a long investment horizon, a spouse with basic-rate income, and a clear family-wealth goal, a FIC can be a powerful structure. For a consultant at 58 with good but not exceptional private income and no immediate family-planning need, the running cost is likely to outweigh the benefit. The FIC is a fit question, not a blanket recommendation, and the honest value is a fit assessment before a commitment is made.

How we help doctors decide whether a FIC fits

Medical Accountants UK works with consultants and GP partners who are weighing whether a FIC, a discretionary trust, or optimising their existing company and personal investment accounts is the right route. That typically means modelling the corporation tax on retained income against the 45% personal rate on the same surplus, estimating the IHT position on a seven and fifteen-year horizon, mapping the settlements risk to make sure the income-splitting benefit is real rather than theoretical, and stress-testing the extraction plan for different scenarios (sole extraction, family extraction, MVL at exit). We are direct about when the running cost is justified and when it is not, because a poorly fitted FIC costs money in professional fees without saving any tax.

For the wider incorporation picture, our guide on GP limited company tax benefits and drawbacks covers the trading-company decision, and private practice tax and the NHS and private income split frames where a FIC sits relative to your overall income mix. You can also see the full range of tax services we provide to consultants on our for consultants page. If you would like the numbers run on your situation, the short contact form below is the place to start.