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Freezer Shares & Growth Shares in Family Investment Companies

Published by Shachham Subedi
Published Date: June 20, 2023

High-net-worth individuals are increasingly drawn to Family Investment Companies (FICs) as a favoured choice for tax and succession planning. FICs continue to be a popular investment vehicle for many families presently and are anticipated to maintain their appeal in the future.

However, it is crucial to assess whether these FICs are being established and operated in an effective manner to ensure the desired level of protection.

Incorporating FICs should be regarded as a strategic element within the broader framework of inheritance, succession, and wealth planning. By carefully considering and implementing FICs, individuals can enhance their ability to safeguard and pass on their wealth in a manner that aligns with their specific goals and objectives.

The benefits of growth shares in a Family Investment Company include incentivising key stakeholders for future value appreciation and the benefit of freezer shares includes preserving existing equity value while allowing for new investment or incentives. In this article, we will discuss in detail about the freezer shares and the growth shares that will be considered in Family Investment Companies.

Freezer Shares in FICs

Freezer shares

Freezer Shares refers to a process whereby the value of your shares is ‘frozen’ so that it cannot grow further, and a new class of shares is created that will benefit from future growth.

The intention of Family Investment Companies is to freeze the value of the shares so that future growth in value accrues to the intended beneficiary, which will typically be the next generation. This can be easily achieved by altering specific sections of the Articles of Association of a company to divide the share of the company into two classes, A shares and B shares.

The A shares carry a right to dividends and/or capital in case of winding up equivalent to the current value of the company and which are retained by you. The most important thing to note here is that while incorporating the company, the current value is equivalent to the nominal value of A shares. i.e., £1 per share since there are not any other assets in the company.

Here all future growth in the value of the company will be accrued to the B shares, which will be given to your children or, most probably, to a trust that helps to benefit the succeeding generations. At this point of time, there should be no Inheritance Tax implications inherent in this planning.

The new B class of shares will only have a nominal value as initially, and they have no dividends rights, voting rights, and no capital value over and above their face value. Since there has been no significant transfer of value, the value of the existing shares by this time is not substantially reduced. In case of your death, you will be taxed only in case of the value of the company at the date the two share classes were created.

The Freezer shares will provide an opportunity for owners of companies to cap the value of the shares for Inheritance Tax planning purposes by transferring the future growth in the value of the company, which is outside their estate.

The ‘frozen’ shares gradually decline in value, and the other shares gradually increase, but for the purposes of both CGT and inheritance tax, this does not result in any deemed gifts.

You Asked !

What happens if the net value of your company’s rental properties appreciates before you die?

In this case, the increase in the net value of properties will eventually be taxed at 40% by the HMRC in the form of Inheritance Tax (IHT). For example, if the properties in your Limited Company were to appreciate by, say, £5,000,000 by the time the shareholders pass away, the IHT liability on those shares could rise by as much as £2,000,000.

The solution we recommend for dealing with this issue is an established structure known as creating “Freezer Shares” or “Growth Shares.

We Answered !

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How do Freezer Shares work?

Ordinarily, Parents in a company own A-share. These have voting rights, dividends rights, and all capital appreciation attributed. Here, it is possible to create a new class of shares (B-shares) that initially have a nominal value as they will not have any voting rights or capital value other than their face value of £1 each and no dividend rights.

Freezer Shares strategy involves gifting these shares. Once the B shares have been transferred, the company rules are changed so that future capital appreciation is to be attributed to the B shares. The major outcome is that all the future capital growth will accrue to the B shares, which will be outside the estate of the A-share shareholders.

If the B shares do not have any voting or any dividend right, they remain virtually worthless until such time as the company is either wound up or the A-shares are transferred to the B shareholders. The latter would normally occur on the death of the A-share shareholders.

Accordingly, there is little to any value in the B shares for creditors or divorcing partners while the shareholders of the A shares are still alive and remain in full control of their company.

You Asked !

What Are Growth Shares?

Growth shares refer to a special type of share class that can allow an individual to share in the growth of a company. Growth shares are a common tool used in tax planning to limit an individual’s inheritance tax (IHT) exposure and pass value down to future generations.

We Answered !

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How Do Growth Shares Work and Who Are They Useful For?

Growth shares are commonly used in companies that have high growth prospects, including investment property companies.

They involve a new class of shares being created, which have economic rights that only allow the new share class to have value above the agreed limit. These growth shares are then allotted or gifted to individuals other than the existing shareholders (such as other family members or employees).

The existing shares are reclassified into ‘freezer shares’ that have economic rights up to the agreed hurdle, and these shares tend to be retained by the existing shareholders. This is achieved by amending the Articles of Association of the company to create the new classes.

The growth shares tend to be created with no voting rights, such that the freezer shareholders retain control over the company (which can be an important consideration of planning). They can also be created with or without dividend rights, depending on the preferences of the existing shareholders.

For Example, 

In a company worth £1m, the existing shareholders would hold freezer shares that retain economic rights to the first £1m of company value. The growth shares can then be created to have economic rights on a winding up (or sale) to any value exceeding £1m.

What Are the Tax Considerations?

taxes in FIC

Growth shares are a useful planning option where a shareholding is not expected to qualify for inheritance tax reliefs (such as shares in an investment company) or to pass future value in a tax-effective manner to younger generations.

Gifting shares away in investment companies can trigger a considerable amount of Capital Gains Tax (CGT) for the donor, even where no cash is received. The shareholder may also rely on those shares for capital or income (through dividends), so gifting the existing shares away can be seen as an unattractive option.

Growth shares can provide a solution for these issues, and the main tax considerations of growth shares are summarised below:

1. Inheritance Tax

If growth shares are implemented, all future growth in the business value would be allocated to the growth shareholders. This would mean that all growth (above the agreed hurdle) would be outside of the freezer shareholders’ estates, which can result in a significant IHT saving if the company value has grown significantly by the date of death.

Where growth shares are implemented, the existing shareholders would technically be making a disposal of their right to participate in any future company growth to the growth shareholders for both IHT and CGT purposes.

2. Capital Gains Tax

If the growth shares are considered to have some value, CGT can become payable due to the freezer shareholders disposing of their right to future growth. Generally, a gain on a gift of shares in a trading company can be held over, and this would avoid CGT becoming payable. However, if the shares are in an investment company (and thus do not qualify for CGT holdover relief), CGT can become payable by the freezer shareholders when growth shares are given to an individual.

An exception to this is where the growth shares are transferred into a trust, in which case any gain can be held over (even if the company is considered an investment company).

Which is beneficial for family-owned businesses- Growth shares or freezer shares?

Shares value

The important aspects of these type of share structures are that the older generation want to protect most of their existing equity value. The Freezer shares are entitled to a certain amount of value on an exit event, that is, in case of winding up, whereas the growth shares will be entitled to the future capital appreciation of the company.

Sometimes, the freezer shares will be arranged with a preferred dividend coupon rate on their frozen value. This will generally depend on the extent to which the older generation feels they need a guaranteed income entitlement during their retirement.

Similarly, voting rights can be thought about in terms of whether the older generations are willing for the growth shares to pass to the younger generations to carry voting control or not.

The planning of the Growth share, rather than a buyout of the older generation or directly gifting their shares to the new generation, might be an attractive option in some cases. For example, where there is a need by the older generation not to pass too much equity too early to the next generation or where the older generation does not currently need any significant equity or return from the business yet.

Also, they may want to retain voting control in the company and stay actively involved in the day-to-day business, or perhaps the business cannot easily raise a large capital payment for their equity. In all these circumstances, the better solution is to give the older generation a right to an income arising from those shares.

This structure can also be Inheritance Tax (IHT) driven, as the freezer shares can potentially qualify for 100% relief from IHT, whereas cash or a loan note from a buyout would generally not qualify.

However, in a family business scenario, this is typically less of a concern if the older generations are gifting the growth shares to the younger family members. Any capital gain should qualify for business asset gift (aka holdover) relief, the gift should qualify for IHT relief by virtue of Business Property Relief, and the ‘primary due to family or personal relationship’ exemption should (normally) shelter an income tax charge on the recipient.

For Example,

Mr. Kohli owns all the shares in ABC Ltd, a company that invests in both property and the stock market. He wants to pass on the company to his adult children, but he knows that if he simply gives them shares, he will have to pay CGT on the deemed gain, and if he dies within seven years of the gift, the value of the shares given will be included in his estate – as will the value of any shares he still owns.

The company is valued at £800,000. Mr. Kohli is 49 and plans to retire at 62. He typically takes £60,000 a year in dividends from the company, but he looks forward to a decent pension and reckons he will not need these dividends after he retires.

Mr. Kohli arranges for the company to issue him a new class of shares (‘B shares’)-Growth shares, and to rename his existing shares ‘A-Shares’-Freezer shares. ABC’s articles of association are amended to say that the B-shares are not entitled to anything (whether dividends or a share of the sale proceeds if the company is sold or liquidated) until the holders of the A-shares have received £800,000 (again, in dividends or a share of sale proceeds). The A-shares are entitled to £800,000 and no more. Mr. Kohli then gives the B-shares to his children.

There is no holdover for CGT, but what is the value of the B-shares? Given that the B-shares are unlikely to be entitled to anything for at least thirteen years if Mr. Kohli carries on his present dividend policy, I would submit they are worth virtually nothing.

As time goes by and Mr. Kohli receives his £60,000 dividends each year, the value of his A-shares decreases, and the value of the B-shares increases. After ten years, when Mr. Kohli has had £600,000 of the £800,000 that his A-shares allow him to have, the value of the B-shares will have started to increase significantly, but none of this increase is because of a gift by Mr. Kohli – it is just a natural consequence of the way the company’s share capital works.

Mr. Kohli has succeeded in transferring most of the value of his company to his children at no tax cost whilst retaining the right to sufficient dividends to see him through to his pension!


Incorporating freezer shares and growth shares within a Family Investment Company (FIC) offers a valuable framework for equity ownership and incentivisation. Freezer shares provide stability and value preservation for family members, allowing them to maintain control over existing equity.

Growth shares, on the other hand, enable the participation of younger generations by providing them with the opportunity for future value appreciation. This dual-class structure aligns the interests of family members and their younger generations while promoting long-term commitment and strategic decision-making.

However, careful consideration of legal and governance aspects is crucial when implementing these share structures.Hence partnering with UK Property Accountants can greatly benefit the implementation of freezer shares and growth shares within a Family Investment Company (FIC).

UK Property Accountants can provide valuable expertise in navigating the complex tax implications associated with these share structures. We can offer guidance on tax planning strategies that optimize the benefits for both existing shareholders and recipients of growth shares, ensuring tax efficiency and compliance.

Furthermore, Contact us today and we can assist with structuring the FIC in a tax-efficient manner, considering factors such as entity selection, jurisdiction, and asset allocation.

Shachham Subedi
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