Linked Investment Company planning: What you need to know

By Edward Hayes TEP Tim Williams Emma Heelis-Adams Guy Broadfield

29 Jul 2026 5 min read

Ground-level view of skyscrapers with tech network overlay

Linked Investment Companies explained

This guide explains how Linked Investment Companies (LICs) are used in practice, why they can be an effective tool for business owners, and where they can add real value. We explore how LICs can help separate investment and trading assets, support succession and exit planning, and provide a tax-efficient structure for holding and reinvesting wealth generated by a trading business.

Quick links

What is a Linked Investment Company (LIC)?

“Linked investment company” is not a legally defined term, so you may see it used to mean different things in different contexts.

For the purposes of this note, we use it to refer to a form of holding company which is inserted between shareholders and a trading company and which can provide a number of practical and tax advantages as compared to direct ownership.

A simple example might look like this:

Why establish a Linked Investment Company?

The potential benefits of a LIC include:

1. Separation of investment and trading assets

A LIC can be used to extract surplus cash or investment assets from a trading company in a tax efficient manner.

Siloing higher-risk investments, new ventures or other non-core business opportunities helps ring-fence an established trading business from commercial risks, allow the exploration of new ventures and (if relevant) prepare a business for sale.

It can also simplify access to valuable UK tax reliefs for the trading business, such as business property relief from inheritance tax.

2. Exit planning for the trading business

Provided that the LIC holds at least 10% of the share capital in the trading company (and it will often hold more than 25% for reasons explained below) it may be able to access the “substantial shareholding exemption” such that it will suffer no UK tax when it sells its interests in the trading company.

This can allow the gross proceeds from all or part of an exit to be re-invested, rather than losing a material portion to tax up-front.

3. Tax-efficiency for ongoing investments

Whether holding cash extracted from the trading business or proceeds from an exit, a LIC can provide a tax-efficient environment for investment growth.

For example, within the LIC:

Dividends are often entirely tax-free (whereas an individual might face a rate of up to 39.35%).
Other profits are normally subject to the 25% rate of corporation tax (as opposed to the maximum income tax rate of 45%, soon to rise to 47%, for individuals).
Certain expenses incurred by the company may also be deductible when calculating taxable profits (no such deductions are usually permitted for individuals).

That being said, tax will always need to be considered carefully as there are some downsides to investing within a corporate. For instance, there can be additional tax when value is extracted from the LIC and some tax reliefs available to individuals are not available to companies.

4. Succession planning

LICs can be tailored to a particular individual’s or family’s situation and needs and this includes succession planning.

Just by way of example, there are various ways in which shares in the LIC can be given to the next generation so as to pass wealth on to them. In particular, “growth shares” can be used to gift future increases in value, or steps can be taken to gift existing value in the trading company using hold-over relief.

In either case, restrictions can be put in place to allow the older generation to control the younger generation’s access to value.

A LIC used for succession planning might look like this:

How to establish a Linked Investment Company

The exact process will vary from case to case but generally involves:

Establishing the LIC as a stand-alone company.
Restructuring the trading company’s share capital so as to split the ordinary share capital into two or more classes (with one class intended to be transferred to the LIC).
Transferring the new class of shares in the trading company to the LIC in exchange for more shares in the LIC (this step results in the LIC being inserted in between the business owners and the trading company).
Then:

arranging one or more (usually tax-free) dividends in favour of the LIC to extract cash or investment assets from the trading company; and/or
waiting for a disposal of the trading company to fund the LIC.

For a number of reasons LIC planning should generally be undertaken at least 14 months ahead of an exit from the trading business (and generally earlier if possible).

Part of this relates to the tax clearance which is generally sought for the share exchange at step 3 above (this ensures the exchange does not trigger any immediate tax for any party). In order for the exchange to be tax neutral the LIC generally needs to be acquiring more than 25% of the trading company.

The LIC also needs to hold its shares in the trading company for at least 12 months in order to be eligible for the substantial shareholding exemption on an exit.