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Freezer Shares & Growth Shares in Family Investment Companies

Freezer Shares & Growth Shares in Family Investment Companies

Freezer Shares & Growth Shares in Family Investment Companies

Are you navigating the complexities of wealth transfer within your family investment company while trying to control tax liabilities? “Freezer shares & growth shares in family investment companies” offer tailored solutions, striking a perfect balance between value retention and capitalising on future growth potential. This article delves into how these strategic shares function within family investment companies, providing practical insights for controlling assets, enabling tax efficiencies, and paving the way for a smooth generational wealth passage.

Key Takeaways

  • Freezer shares enable older generation shareholders to retain control and fix the value of their assets for inheritance tax purposes, while growth shares allow the younger generation to benefit from future company growth, fostering tax-efficient wealth transfer.
  • Implementing freezer and growth shares offers significant tax advantages, such as potential inheritance tax relief, business asset gift relief, and income tax exemptions, which are strategically leveraged by Family Investment Companies.
  • Proper incorporation of freezer and growth shares into a Family Investment Company’s structure requires amending the Articles of Association, valuing the company, and carefully distributing shares to family members, ensuring control remains with the current shareholders while enabling wealth growth for future generations.

Understanding Freezer Shares and Growth Shares

To successfully utilise freezer and growth shares, one must first grasp their fundamental principles. Freezer shares, as their name suggests, are designed to ‘freeze’ the value of your existing assets. They allow older generation shareholders to retain control over their assets while passing on future growth to younger family members. On the other hand, growth shares are your ticket to future capital growth. They don’t affect your existing equity value but capitalise on the company’s future growth, benefiting the younger shareholders.

Consider the scenario of owning a prosperous property portfolio. Freezer shares can secure the value of this portfolio for inheritance tax purposes, safeguarding your wealth. Meanwhile, growth shares allow the younger generation in your family to reap the benefits of your company’s growth, opening up new avenues of wealth accumulation. These shares, often referred to as ‘b shares’, balance the need for retaining value and control with the goal of passing on the financial benefits of future growth to the younger members in a tax-efficient manner.

Freezer Shares: Retaining Value and Control

Freezer shares provide a tactical approach to maintaining control over your assets and preparing for future growth. They offer the following benefits:

  • Fix the value of your original shares at their current level, effectively ‘freezing’ further growth on these shares
  • Allow you, the existing shareholder, to retain control over the business
  • Create new growth shares for future appreciation

How does this connect with succession planning? Utilising freezer shares enables the transfer of future economic growth to subsequent generations or trusts, all while reducing potential tax liabilities, especially inheritance tax. This balance of value retention and future growth makes freezer shares an effective tool for tax-efficient wealth transfer.

Growth Shares: Capitalising on Future Growth

Growth shares present a distinct opportunity as they give precedence to future growth rather than immediate equity. This means that these shares only begin accruing value after the company exceeds a predetermined value threshold. What’s more, implementing growth shares can be an effective tax planning strategy to reduce inheritance tax liabilities for future generations.

While growth shares can come with dividend rights, they typically do not carry voting rights, ensuring that founding shareholders maintain decision-making control. This makes growth share planning an attractive option, especially when the older generation does not want to pass down too much equity too early or does not currently want or need significant equity from the business yet.

Tax Advantages of Utilising Freezer Shares and Growth Shares

The tax benefits are among the primary advantages of employing freezer and growth shares. Family Investment Companies (FICs) offer strategic tax and succession planning opportunities, making them appealing for wealth transference among high-net-worth individuals. From facilitating efficient succession planning to offering potential inheritance tax relief, FICs are a powerful tool for wealth management.

Assets sold within a limited company, such as a property investment company, are subject to corporation tax, which is generally lower than personal Capital Gains Tax rates. This offers an additional layer of tax efficiency. However, it’s important to note that without entitlement to Business Property Relief, shareholders in a valuable private investment company may face significant inheritance tax exposure based on the capital value, which can be as high as 40%.

Inheritance Tax Relief

Freezer shares significantly contribute to the reduction of inheritance tax liabilities. By fixing the value of your shares for inheritance tax purposes, the future growth of your company can be transferred outside of your taxable estate. This strategic structuring can lead to a potential qualification for 100% relief from inheritance tax, significantly reducing the taxable value of your estate compared to traditional cash or loan notes.

Conversely, growth shares can lead to inheritance tax savings because any surge in company value beyond the agreed-upon threshold benefits the share holders, not the original shareholders. This effectively lowers the inheritance tax liabilities of the original shareholders.

Business Asset Gift Relief

Gifting growth shares to family members could qualify for business asset gift relief, potentially avoiding capital gains tax for the donor. This is a significant advantage, especially for high-net-worth individuals looking to pass on their wealth in a tax-efficient manner.

Even when gifting growth shares to a discretionary trust, it’s possible to hold-over the gains so that no capital gains tax arises immediately due to the application of inheritance tax. This strategy can prove to be a valuable tool in wealth management and tax planning.

Income Tax Exemption

From a tax planning perspective, the use of freezer and growth shares could result in income tax exemptions. For instance, repayments of directors’ loans by a Family Investment Company (FIC) to shareholders are free of income tax, even when repaid from the company’s capital or net profits. Similarly, dividend income received by a FIC is not subject to Corporation Tax as it’s considered that these dividends have already been taxed at the issuing company’s level.

Moreover, the creation of freezer shares allows the value of the shares to be capped, with future growth accruing to the separate class of growth shares. This results in no deemed gifts for tax purposes and no immediate income tax charge. The allocation of growth shares to individuals can be structured in a way that they have little to no initial value and thus negligible income tax implications. This strategy can pass future company value to younger generations without triggering an immediate income tax event.

Implementing Freezer Shares and Growth Shares in a Family Investment Company

Incorporating freezer and growth shares into a Family Investment Company entails a few crucial steps. One of the first steps is to modify the Articles of Association of the company. This modification splits the company’s equity into two classes, typically known as A shares and B shares. The A shares hold the current value and rights of the company, while the B shares are aligned with future growth.

This process of modification and equity split is important for creating a clear distinction between the present market value and future growth of the company. It allows the current generation to retain control and pass on the benefits of future growth to the next generation in a strategic and tax-efficient manner.

Valuation and Share Structure

When setting up freezer shares, it’s imperative to accurately value the Family Investment Company since it secures the existing value with A shares while allocating B shares for future growth. The shares can be structured to omit voting rights, ensuring the current directors or shareholders maintain control over the strategic direction of the company.

On the other hand, growth shares can be engineered without granting voting rights. This allows the founding shareholders to preserve control whilst enabling future generations to benefit from the company’s growth in value. This balance of control and growth is crucial in maximizing wealth potential.

Updating Company’s Articles of Association

Updating the company’s Articles of Association is a critical step when introducing freezer shares into a family investment company. The amendments must clearly define the newly established classes of shares, ‘A shares’ and ‘B shares’, which represent the current value and future growth, respectively.

To properly update the Articles of Association for accommodating new share classes, the following steps must be taken:

  1. A special resolution must be passed by a 75% majority of eligible members’ votes or through a written resolution.
  2. Once the amendments have been approved, the company must file the changes with Companies House within 15 days.
  3. Include a copy of the amended articles when filing the changes.

Issuing Shares to Family Members

Once the new share structure is in place, the next step is issuing shares to family members. Current shareholders can retain A shares, reflective of the company’s current value, and distribute B shares that capture growth potential to the next generation or to a trust for their benefit.

Growth shares can be distributed to family members under specific conditions detailed in the company’s articles of association, such as granting right of first refusal to the company or other family members to maintain family control. This strategic distribution of shares can be a powerful tool for inheritance, succession, and wealth planning that helps safeguard and pass on wealth in alignment with family goals.

Case Study: Successful Implementation of Freezer Shares and Growth Shares

To illustrate these principles, let’s examine a case study showcasing the successful deployment of growth shares in a Family Investment Company. In this particular case, A shares held by the original owner retained rights to dividends and capital up to the company’s current valuation, representing their nominal value. This trading company serves as an example of how a family investment company can effectively utilise growth shares.

On the other hand, B shares were introduced for the next generation or a trust, specifically designed to accrue benefits from future company growth. The successful deployment of freezer shares preserved the existing equity value for the current generation, while growth shares enabled the next generation to benefit from future growth.

This case study demonstrates the practical implementation of these shares and their potential benefits in a real-world scenario.

Legal and Governance Considerations

Mastering the domain of freezer and growth shares extends beyond simply grasping their benefits and incorporating them. It’s equally important to consider the legal and governance aspects to ensure they deliver the level of protection required as part of comprehensive inheritance, succession, and wealth planning strategies.

Setting up explicit shareholder agreements within family investment companies is essential in managing expectations and averting potential conflicts or misunderstandings among family members. These agreements lay the groundwork for dispute prevention and protection by clearly outlining the rights and obligations of all shareholders.

Shareholder Agreements

Shareholder agreements play a crucial role in managing family investment companies. These agreements:

  • Outline the rights and obligations of all shareholders
  • Prevent misunderstandings and disputes
  • Ensure that business involvement and rewards are based on individual merit and contributions rather than purely on family relationships.

Moreover, shareholder agreements provide a framework for financial separation in situations like divorce proceedings, shielding the business from potential familial disputes. Unlike a will that can be unilaterally changed, a shareholder agreement is a mutual, binding contract that ensures share inheritance within the family business remains as agreed upon by all parties.

Voting Rights and Control

Preserving voting rights and control is essential during the incorporation of freezer and growth shares in a family investment company. The founder of a Family Investment Company customarily acts as the initial director, with the power to appoint successors stipulated in the articles of association, ensuring sustained control over company direction and dividends.

A new class of shares can be introduced with minimal initial voting rights, allowing current shareholders to keep control while allocating future growth to this new share class. This balance of control and growth is crucial in maximising wealth potential and facilitating efficient succession planning.

Succession Planning

Succession planning forms an integral part of steering a family investment company. Freezer shares facilitate succession planning by allowing current shareholders to retain control over the Family Investment Company while preparing for the transfer of wealth.

Growth shares, on the other hand, can be allocated to the younger generation or placed into a trust, paving the way for a seamless transition and succession. These share mechanisms strategically balance immediate control with the future financial involvement of the next generation. The combination of freezer and growth shares represents a powerful tool for family investment companies in managing succession while controlling tax liabilities and maintaining strategic control.


In this journey through the world of freezer and growth shares, we’ve uncovered the potential of these shares in maximising wealth potential in a family investment company. From understanding their core concepts to exploring their tax advantages, and even diving into legal and governance considerations, we’ve covered every aspect of these shares.

The power of freezer and growth shares lies in their ability to balance immediate control with future growth. By implementing these shares, you can secure your existing equity value while paving the way for the next generation to reap the benefits of future growth. It’s time to harness the power of these shares and take a step towards efficient wealth management and tax planning.

Frequently Asked Questions

What are freezer shares and growth shares?

Freezer shares are meant to preserve the value of current assets for older generation shareholders, while growth shares allow younger family members to benefit from the company’s future growth. Both types of shares serve different purposes in transferring assets within a family.

How can freezer shares be structured?

Freezer shares can be structured with a preferred dividend coupon rate on their frozen value, providing a fixed return to the shareholders.

What is the purpose of growth share planning?

The purpose of growth share planning is to provide an attractive option for the older generation when they do not want to pass down too much equity too early, or when they do not currently want or need significant equity from the business yet.

What are the potential benefits of freezer shares for Inheritance Tax (IHT) purposes?

Investing in freezer shares can provide a potential 100% relief from Inheritance Tax (IHT), while cash or buyout loan notes typically do not offer the same benefit. Consider freezer shares as a tax-efficient option for IHT planning.

What exemptions can apply to gifting growth shares in a family business scenario?

When gifting growth shares in a family business scenario, exemptions such as business asset gift relief, Business Property Relief for Inheritance Tax (IHT) purposes, and the ‘primary due to family or personal relationship’ exemption for income tax may apply. These exemptions can help minimise tax liabilities and facilitate the transfer of shares.