Family investment company, trust, or a straight gift?
Compare the three main ways to pass money to your children: what each costs in inheritance tax, the tax on its income each year, and what your children have when they need it.
Your answer
Answer the questions to compare a gift, a trust and a family company.
About this calculator
For parents with a sum to pass on who want to compare a straight gift, a trust and a family investment company before talking to an adviser.
This is a rough guide to the tax, not legal or investment advice. Trusts and family companies need a solicitor and an accountant to set up.
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How it’s worked out
A straight gift is free of inheritance tax once you've lived 7 years, and the first £3,000 a year is free straight away. Its income is your children's, but for a child under 18, income over £100 a year from a parent's gift is taxed as the parent's.
A gift into a discretionary trust is taxed at 20% now on the part above £325,000 (40% if you die within 7 years, less the 20%). The trust pays 45% on interest and 39.35% on dividends, and up to 6% every 10 years and when money comes out.
With a family investment company, you lend it the money and your children own the growth. The loan stays in your estate, but the growth doesn't. The company pays no Corporation Tax on dividends and 25% on interest; your children pay dividend tax when they take the money out.
Worked example
A family investment company grows the money most: about £319,235 for your children after 15 years, but your £500,000 stays in your estate (£200,000 more inheritance tax than a gift).
married: tax on the second death · 5% a year, all dividends · children pay higher rate tax · one giver, no earlier gifts · trustees pay the trust's tax · company costs £2,000 a year
| The money to pass on, growing at 5% a year as dividends, for 15 years | £500,000 |
|---|---|
| Inheritance tax if you keep it and die (both of you) | £400,000 |
| 1. A straight gift | £500,000 |
| Inheritance tax now | £0 |
| Inheritance tax in all if you die within 3 years, £68,800 of it on the gift | £398,800 |
| Inheritance tax in all if you die after 7 years | £200,000 |
| Tax on the first year's income, at your children's rates | − £8,580 |
| Tax on the income over 15 years | − £164,253 |
| Your children have after 15 years | £810,196 |
| 2. A discretionary trust | £500,000 |
| Inheritance tax now: 20% of the £497,000 gift (after the yearly allowance) above £325,000 | − £34,400 |
| Inheritance tax in all if you die within 3 years, £34,400 more on the trust | £398,800 |
| Inheritance tax in all if you die after 7 years, including the £34,400 paid at the start | £234,400 |
| Tax on the first year's income, at 39.35% (none if £500 or less) | − £9,161 |
| Tax on the income over 15 years | − £168,887 |
| 10-year charge after year 10, at 2.89% | − £18,162 |
| Charge when your children take it out, at 1.45% | − £10,239 |
| Your children have after 15 years | £697,503 |
| 3. A family investment company: you lend it the money | £500,000 |
| Inheritance tax now | £0 |
| Inheritance tax if you die, at any time: the loan is still yours | £400,000 |
| Corporation Tax on dividends it receives (exempt) | − £0 |
| Corporation Tax over 15 years | − £0 |
| Running costs over 15 years | − £30,000 |
| Less your loan, repaid to you | − £500,000 |
| The growth, owned by your children's shares | £496,307 |
| Tax on paying it out as dividends, at your children's rate | − £177,072 |
| Your children have after 15 years | £319,235 |
Worked out using HMRC's inheritance tax, trust, income tax and Corporation Tax rules for 2026/27, held for later years except the savings rates already set for April 2027. Not legal or investment advice.
Questions people ask
Which is best?
A straight gift is the simplest and often leaves the most. A trust gives you control over when your children get the money, but costs tax above £325,000. A family company suits large sums left for many years, especially in shares.
Can I give money to my young children without the £100 rule?
Money in a Junior ISA doesn't count, and nor does money from grandparents. A discretionary trust that keeps its income avoids it too, but costs more in tax.
Does a family investment company save inheritance tax?
Only on the growth, if you lend it the money: the loan stays in your estate. If you gift the shares instead, that's a gift on the 7-year clock, like any other.
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