UK Budget 2025: Higher taxes on property, savings and dividends – why Family Investment Companies are back in focus
The 2025 Autumn Budget places a greater tax burden on investment and property income. For individuals who rely on dividends, savings interest or rental income, the message is clear: from 2026/27 and 2027/28 these income streams will be taxed more heavily. As a result, corporate ownership models - particularly Family Investment Companies (FICs) - are becoming increasingly attractive as part of wider tax and succession planning.
This article summarises the key changes, explains how the tax mechanics work, and sets out why advisers and families are revisiting FIC structures.
What changed…?
Dividend income
From 6 April 2026, the ordinary and upper dividend rates rise by 2 percentage points.
The basic dividend rate increases from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%.
The additional-rate dividend charge remains at 39.35%.
Savings income
From 6 April 2027, income tax on interest and savings rises by 2 percentage points across all bands.
The basic rate increases to 22%, the higher rate to 42%, and the additional rate to 47%.
The personal savings allowance and the starting rate for savings are unchanged.
Property income
From 6 April 2027, property income is taxed under its own rate bands: 22% (basic), 42% (higher) and 47% (additional).
Finance-cost relief (including mortgage interest) is aligned to the new basic property rate of 22%.
Reporting and collection mechanisms remain unchanged; only the tax rates change.
Overall impact: These changes increase the marginal tax payable on savings returns, dividends and rental income. Holding such assets personally, outside ISAs or pensions, becomes significantly less tax efficient.
The tax mechanics – why the value of a FIC has increased
Because companies pay corporation tax on profits, and retained profits may be reinvested or distributed at a later date, transferring assets into a company can change both the timing and the total amount of tax paid.
Inside a company
Investment income and trading profits are subject to corporation tax. For many groups, the effective tax burden on retained investment profits will typically be lower than the top personal tax rates applied to unwrapped personal income (corporation tax currently ranges between 19% and 25%, depending on the level of profits and applicable rules). This can be especially beneficial where assets are intended to be held and compounded over the long term.
When profits are distributed
Dividends paid out to individuals remain subject to personal dividend tax, so careful planning around timing, recipients and amounts is essential to preserve or enhance any net benefit.
In short: corporate ownership alters when tax is paid and at what rate. For long-term or multi-generational planning, this can materially improve after-tax compounding if distributions are managed carefully.
What is a Family Investment Company (FIC)?
A FIC is a private company (UK or non-UK) established to hold family investments and to provide controlled economic benefits to family members. Common features include:
Founder shares (with voting rights) held by the senior generation, and economic shares (often non-voting or with deferred entitlement) held by the next generation.
The company may own investments, property or operating businesses.
Dividends and other distributions are governed by the company’s articles and shareholder agreements.
Shares can be gifted or sold to younger generations to support succession planning while preserving founder control.
FICs are bespoke structures that must be designed around the family’s objectives, liquidity needs, planning horizons and governance preferences.
Why FICs are back on advisers’ shortlists
Tax efficiency on retained profits - With personal tax rates on passive income increasing, corporation tax on retained investment income becomes comparatively attractive, particularly where capital is to be reinvested and compounded over time.
Controlled inter-generational wealth transfer - Non-voting or deferred-entitlement shares allow founders to pass economic value to the next generation while retaining strategic control.
Flexibility over distributions - Directors can time distributions for years in which beneficiaries have lower personal tax exposures or use dividends and bonuses to target specific family members.
Estate planning opportunities - Properly structured share transfers can support inheritance tax (IHT) planning, although outcomes depend on timing, residence/domicile considerations and the interaction of anti-avoidance rules.
Key caveats and risks
Not a “set and forget” model - FICs require ongoing governance, accounting, compliance and periodic review. Transaction costs, stamp duty on property transfers, capital gains tax crystallisations, and professional fees can be significant.
HMRC scrutiny - HMRC continues to focus on arrangements that appear primarily designed to mitigate personal tax. Advisers must be able to demonstrate genuine commercial purpose, family-level rationale and robust governance. Offshore elements add further disclosure and economic-substance considerations.
Personal tax still applies on extraction - When funds leave the company - whether by salary, dividend or sale of shares - personal tax (and potentially NICs) applies. Managing the timing and recipients of distributions is therefore essential.
Inheritance Tax considerations - UK IHT exposure is now primarily determined by long-term UK residence under the emerging residence-based rules. In some circumstances, ceasing UK residence and establishing long-term overseas tax residence may mitigate IHT exposure, particularly where non-UK companies or structures are used. However, the rules are complex and include “look-back” periods for former UK residents, so specialist advice is essential.
Considerations
Get specialist advice. Given the complexity and changing rules, a bespoke tax and legal review is vital - there is no “one size fits all.”
Think long term. FICs are most effective when planning for inter-generational wealth transfer, multi-generational benefit or longer-term asset holding.
Structure distributions carefully. Maximising the benefit requires detailed planning of when and how profits or dividends are extracted (timing, tax bands, beneficiaries, etc.).
Understand compliance and transparency obligations. Particularly for offshore FICs, families must comply with beneficial-ownership registration, disclosure regimes and anti-avoidance regulations.
Reassess regularly. Tax law and planning needs evolve over time (as the recent Budget demonstrates). Structures that work today may be less efficient in future, so periodic review is essential.
Bottom line
The 2025 Budget’s increases in dividend, savings and property tax rates make personal ownership of sizeable investment portfolios and rental properties significantly less tax-efficient. FICs are again a live and legitimate planning tool - but they are not a universal solution. Establishing a FIC should be based on rigorous modelling of tax, commercial and succession outcomes, supported by strong governance and ongoing compliance oversight.
How Fiduchi can help
At Fiduchi, we recognise that trust and corporate structures exist to protect family wealth, support succession and help families achieve long-term objectives. Delivering this effectively requires strong governance, clear communication and reliable, consistent administration.
Our ethos of “Excellence through Ownership” guides how we work with families, beneficiaries and their advisers. We take responsibility for outcomes, communication and follow-through, giving clients confidence in how their structures are managed.
We assist with the incorporation of FICs and provide the local corporate, administrative and compliance services required both at set-up and on an ongoing basis. Subject to appropriate professional tax advice, newly incorporated FICs may also be structured to be UK tax resident.
When families and advisers choose to move to Fiduchi, we:
Work closely with existing advisers to plan and manage the transition.
Take time to understand family dynamics, objectives and values.
Provide clear points of contact, regular communication and timely reporting.
Maintain robust compliance and risk management practices aligned with regulatory expectations.
Focus on building long-term relationships based on transparency, responsiveness and trust.
For more information about our services or for an informal discussion, please contact Graham Marsh TEP, Heidi Thompson or David Hopkins.
N.b. This article does not constitute tax advice.