Buy to Let: Discretionary Trust vs Family Investment Company (FIC)
Published / Last Updated on 30/03/2026
A Simple, Structured Comparison for UK Families: The differences between using a discretionary trust and using a family investment company to make gifts of buy-to-let property
Overview
Discretionary Trust
A legal structure where trustees control assets for beneficiaries.
Family Investment Company (FIC)
A private company used to hold and grow family wealth, with control retained through voting shares. Alphabet Shares A and B Shares – A control (parents) and B dividends and growth
Key Differences (At a Glance)
|
Feature |
Discretionary Trust |
Family Investment Company (FIC) |
|
Best For |
Flexibility & protection |
Larger portfolios & long‑term growth |
|
Control |
Trustees |
Directors (usually parents) |
|
Tax on Entry |
20% IHT above £325k NRB |
No immediate IHT (PET rules) |
|
Income Tax |
Trust rates up to 45% |
Corporation tax 19%–25% |
Setup & Structure
Discretionary Trust
- Created via a trust deed
- Trustees manage assets
- Beneficiaries have no automatic rights
- Flexible distribution options
FIC
- Formed as a private limited company
- Articles and share classes define control
- Parents retain voting rights
- Children receive growth/value shares
How Each Structure Works
Trust
- Trustees decide who benefits and when
- No fixed entitlement for beneficiaries
- Suitable for changing family needs
FIC
- Share classes determine rights
- Parents keep control through voting shares
- Children benefit from dividends or future growth
Tax at the Outset
Inheritance Tax (IHT)
Trusts
- £325k NRB per person (£650k for couples)
- 20% lifetime IHT charge above the threshold
FICs
- Gifts treated as PETs
- No immediate IHT
- Full exemption if donor survives 7 years
Capital Gains Tax (CGT)
- Transferring property triggers CGT for both structures
- Trusts: May qualify for Hold‑over Relief
- FICs: No hold‑over relief unless a genuine property business is incorporated
Stamp Duty Land Tax (SDLT)
Applies to both structures:
- Standard SDLT
- +3% additional property surcharge
FIC‑specific considerations:
- Possible 17% “super rate”
- ATED for residential properties over £500k (commercial letting usually exempt)
Ongoing Income Tax
Trusts
- Income taxed at 45% (47% from 2027)
- Beneficiaries may reclaim some tax
FICs
- Corporation tax 19%–25%
- Full mortgage interest deductibility
- Dividends to shareholders can be tax‑efficient
Flexibility & Control
Trusts
- Maximum flexibility
- Trustees can vary distributions annually
FICs
- Maximum control
- Parents retain decision‑making even after gifting value
Exit Strategy & Ongoing Charges
Trusts
- 10‑year anniversary charges (up to 6%)
- Exit charges when capital is distributed
FICs
- No 10‑year charges
- Shares remain in the shareholder’s estate unless gifted
- Gifts of shares are PETs (7‑year rule applies)
Summary Recommendation
Choose a Discretionary Trust if:
- The gift is within the £325k/£650k threshold
- You want maximum flexibility and beneficiary control
Choose an FIC if:
- The portfolio is high‑value
- You want lower ongoing tax rates
- You want to retain control while passing value to children
FAQs
What is the main tax difference between a Trust and an FIC?
Trusts face immediate IHT above the NRB; FICs do not (PET rules apply).
Which structure offers more control?
FICs — parents retain control through voting shares.
Which structure is more flexible?
Trusts — trustees can change beneficiaries and distributions at any time.
Do both structures trigger CGT on transfer?
Yes. Trusts may allow Hold‑over Relief; FICs generally do not.
Is mortgage interest deductible?
Yes for FICs (full deduction).
No for Trusts (restricted like personal ownership).
Do FICs have 10‑year charges?
No. Trusts do.
Which is better for large portfolios?
FICs, due to lower corporation tax and interest deductibility.
