Passing wealth down through a family investment company (FIC) often comes down to one practical question: how do you keep control of what you own today while letting the next generation benefit from future growth, without triggering unnecessary tax? Freezer shares and growth shares are the two share classes most commonly used to answer that question. This guide explains how each works, the tax position in the UK, and how they fit together inside a family investment company.

Key Takeaways

• Freezer shares fix the value of the existing shareholder’s holding at today’s level, so future growth in the company accrues elsewhere and stays outside their estate for inheritance tax purposes.
• Growth shares only have value once the company grows beyond a set threshold (a “hurdle”), making them an efficient way to pass future value to children, grandchildren or a family trust.
• Used together inside a Family Investment Company, freezer and growth shares can support tax-efficient succession planning, while the founder keeps voting control through the FIC’s articles of association.
• Setting them up requires a proper company valuation, amended articles of association, and clear shareholder agreements; specialist tax advice is essential because reliefs such as Business Property Relief generally do not apply to investment companies, and the rules around BPR were tightened from 6 April 2026.

What Freezer Shares and Growth Shares Are

Freezer shares are designed to “freeze” the value of an existing shareholder’s interest at today’s figure. The shareholder keeps rights to that frozen capital value (and often a fixed dividend on it), but any growth in the company from this point forward is directed to a different class of share. They are typically held by the older generation who want to retain control of the company they have built.

Growth shares work the other way around. They have little or no value on the day they are issued because they only participate in the value of the company above an agreed hurdle, usually set at, or slightly above, the current market value. Once the company grows past that hurdle, the growth shares share in the upside. Because the starting value is low, growth shares can be passed to children, grandchildren or a family trust at minimal tax cost.

Take a property investment portfolio held in a family company as an example. Freezer shares fix the existing value of the portfolio in the founder’s hands, so the IHT exposure on those shares is anchored at today’s figure. Growth shares issued to the next generation then capture the value of any future rental growth, capital appreciation or new acquisitions, building wealth for the family in a structure where the founder still calls the shots.

Freezer Shares: Retaining Value and Control

Freezer shares give a founder a way to step back economically without stepping back operationally. In practical terms, they:

• Cap the capital value of the founder’s shares at today’s valuation, so future growth does not inflate their estate further.
• Usually carry a preferred (often fixed) dividend right on that frozen value, providing an ongoing income stream.
• Can be structured to retain the voting rights in the company, so the founder continues to control strategy and distributions.

The succession planning logic is straightforward. By freezing the value of the founder’s shares now, future economic growth is directed to whoever holds the growth shares, typically the next generation or a family trust. Provided the founder survives the seven-year clock on any related gifts and the arrangement is structured properly, this can meaningfully reduce the value of the founder’s estate for inheritance tax over time.

Growth Shares: Capturing Future Value

Growth shares are issued with a hurdle. If the company is worth £5 million today and the hurdle is set at £5 million, the growth shares only start participating in value above that figure. Below the hurdle, the freezer shares (and any ordinary shares with frozen rights) take everything; above it, the growth shares share in the upside.

A few features of growth shares are worth highlighting:

• They are normally issued with no, or very limited, voting rights. The founding generation keeps day-to-day control.
• They can be structured to receive dividends, share only in capital growth, or both, depending on what the family wants to achieve.
• Because their initial market value is low, they can be gifted or subscribed for at modest cost, which is what makes them useful for succession.

For a founder who is not ready to hand over economic ownership of a mature company, but does want the next generation to benefit from anything built from this point forward, growth shares provide a clean way to draw that line.

Tax Position of Freezer and Growth Shares in a FIC

The tax appeal of these structures is real, but it needs to be stated accurately. Family Investment Companies are commonly used by higher-net-worth families because UK corporation tax on retained profits is typically lower than the personal income tax rates the same profits would attract, and because the company structure makes governance and succession easier to control. One nuance to be aware of: a FIC whose income is mainly from investments is usually a “close investment-holding company” for tax purposes, which means it pays corporation tax at the main rate (25% for the financial year 2026) rather than the 19% small profits rate, regardless of profit level.

A point worth being clear about: a Family Investment Company that holds investment assets such as let property, shares or cash is an investment company, not a trading company. Business Property Relief from inheritance tax is generally not available on shares in an investment company, so the headline 100% IHT relief that applies to genuine trading businesses will not normally apply here. Even for trading businesses, BPR has been capped from 6 April 2026: 100% relief is now limited to a combined £2.5 million of qualifying business and agricultural property per individual (transferable between spouses), with 50% relief on the value above that cap. The IHT planning value of freezer and growth shares in a FIC therefore comes from capping the founder’s share value and shifting future growth, not from BPR.

Inheritance Tax Planning

The IHT advantage of freezer shares is that they fix the value of the founder’s holding at today’s figure. Any future growth in the company belongs to the growth shareholders, which is often the next generation or a discretionary family trust. Over time, the founder’s taxable estate is therefore smaller than it would have been if all the growth had stayed on their original shares.

Growth shares contribute to the same outcome from the other end. Because they have a low initial value, gifting or subscribing for them creates little or no immediate IHT exposure, yet they capture future increases in company value in the recipient’s hands rather than the founder’s. The combined effect of the two share classes is to anchor today’s value with the founder while letting tomorrow’s value accrue outside their estate.

Capital Gains Tax on Gifting Growth Shares

Where growth shares carry a low initial value, the capital gains tax exposure on a gift is correspondingly small. The route most commonly used in a FIC context is hold-over relief under section 260 of the Taxation of Chargeable Gains Act 1992, which defers any gain where the gift is an immediately chargeable transfer for inheritance tax purposes, typically a gift into a discretionary trust. Section 165 hold-over (the “gift of business assets” version) generally does not help here, because it requires shares in a trading company and a FIC holding investments is not a trading company.

Hold-over relief is not automatic, and the gift may itself trigger an entry charge to inheritance tax to the extent its value exceeds the available nil-rate band. This is one of the areas where professional advice is essential, because getting it wrong can leave a dry CGT charge with no cash to pay it.

Income Tax and Corporation Tax

There are a few useful points on the income side of an FIC:

• Repayments of a director’s loan account are returns of capital, not income, so the director draws money out of the FIC without an income tax charge until the loan is exhausted.
• UK dividends received by a UK FIC are normally exempt from corporation tax under the dividend exemption rules in Part 9A of CTA 2009, so accumulated profits inside the FIC compound without a layer of corporation tax on dividend income.
• Issuing growth shares at their (low) market value typically avoids an immediate income tax charge, but the employment-related securities rules in Part 7 ITEPA 2003 can apply where any recipient is, or becomes, an employee or director of the FIC or a connected company; this needs careful structuring and a defensible valuation.

These features are why FICs have become a fixture of long-term family wealth planning, and why the freezer-and-growth share split sits naturally on top of them.

Setting Up Freezer and Growth Shares Inside a FIC

Putting the structure in place involves three main steps: valuing the company, redrafting the articles of association to create the new share classes, and issuing the new shares to the right people.

Company Valuation and Share Design

A defensible valuation of the company is the foundation of the whole structure. It sets the level at which the freezer shares are capped and the hurdle at which the growth shares start to participate. If HMRC ever challenges the arrangement, the valuation is what the rest of the planning stands on.

From there, the share design follows the family’s objectives. Freezer shares are typically structured with the existing capital and dividend rights but capped at today’s value; growth shares are structured to participate only above the hurdle, often without voting rights. Founders who want to retain firm control usually keep all voting rights on the freezer shares.

Updating the Articles of Association

The articles of association need to reflect the new share classes properly. In practice, this means:

1. Drafting amended articles that define each share class, the rights attaching to it, and the hurdle on the growth shares.
2. Passing a special resolution of the shareholders, requiring a 75% majority of those voting (in person, by proxy or by written resolution).
3. Filing the amended articles and the resolution with Companies House within 15 days of the resolution being passed.

It is also common practice to put a shareholders’ agreement in place at the same time, dealing with transfer restrictions, pre-emption rights, dividend policy and what happens on death, divorce or a family dispute.

Issuing Shares to Family Members or a Trust

Once the share classes exist, the founder typically retains the freezer shares and the growth shares are subscribed for by, or gifted to, the next generation or a family trust. Because the growth shares have a low initial value, the upfront tax friction is usually modest.

Many families choose to issue the growth shares to a discretionary trust rather than directly to children. A trust gives flexibility over who ultimately benefits and when, can offer protection from divorce and creditor claims, and allows distributions to be matched to family circumstances over time. The founder cannot retain personal control over a trust they have settled (that would create tax problems), but the choice of trustees and a letter of wishes typically give meaningful influence. The trade-off is the trust’s own IHT regime (the ten-year and exit charges), which needs to be modelled at the planning stage.

A Worked Example

Consider a family company valued today at £5 million. The founder reorganises the share capital so that their existing shares become freezer shares: capped at £5 million in capital value, carrying a fixed dividend right, and retaining all voting rights. New growth shares are issued to a family discretionary trust, with a hurdle of £5 million. The growth shares start with a nominal market value because they have no rights to existing value.

Ten years later, the company is worth £8 million. The freezer shares are still capped at £5 million (plus accrued unpaid dividends, if any). The £3 million of growth sits with the trust through the growth shares. The founder’s estate has been kept flat in value terms; the next generation’s wealth has grown by £3 million inside a company the founder still controls through the voting rights on the freezer shares. The IHT, CGT and income tax outcomes along the way will depend on the detail, but the direction of travel is what makes this structure attractive.

Legal and Governance Points to Get Right

The tax planning only holds up if the legal scaffolding around it is sound. Three areas matter most.

Shareholder Agreements

A shareholder agreement sits alongside the articles and covers the points the articles do not, or should not, deal with publicly. In a family context, it typically addresses:

• What happens to shares on death, divorce, bankruptcy or a falling-out.
• Pre-emption rights, so shares cannot drift outside the family.
• Dividend policy and reinvestment.
• Dispute resolution between shareholders.

Unlike a will, which can be rewritten at any time, a shareholder agreement is a binding contract between the parties, which is why it is often the most useful single document in a family company.

Voting Rights and Founder Control

Founders nearly always want to keep voting control while they are alive, and the share structure is the main tool for that. Freezer shares usually carry the voting rights; growth shares usually do not. Combined with director appointment rights in the articles, this lets the founder keep the steering wheel even after most of the future economic value has moved to the next generation.

Succession Planning

The structure is, ultimately, a succession plan. Freezer shares allow the founder to retain control during their lifetime; growth shares move future value to the people the founder wants to benefit. On death, the freezer shares pass under the founder’s will (or by lifetime gift before death), at a value that has been deliberately capped. The growth shares, already in the next generation’s hands or in trust, are unaffected. Done well, the result is a smoother transition, a smaller IHT bill, and a company that carries on running without disruption.

Summary

Freezer shares and growth shares are a long-standing tool for families who want to transfer future wealth without giving up present-day control. Inside a Family Investment Company, freezer shares cap the founder’s value at today’s figure and growth shares carry future increases to the next generation or a trust. The tax savings are real, but they come from structure and discipline, not from a single relief; Business Property Relief generally does not apply to investment companies, so the planning has to do its own work.

If you are considering this for your own family company, the right starting point is a proper valuation, a clear view of who you want to benefit, and tax and legal advice that covers the IHT, CGT, income tax and trust angles together rather than in isolation.

Frequently Asked Questions

What are freezer shares and growth shares?

Freezer shares cap the value of an existing shareholder’s holding at today’s figure, so future growth does not increase their estate. Growth shares only participate in the value of the company above an agreed hurdle, so they let the next generation benefit from future growth without the founder having to give up present-day value or control.

How are freezer shares typically structured?

Freezer shares usually carry a fixed capital value (today’s figure), a preferred dividend right on that value, and the voting rights in the company. The exact rights are set out in the articles of association and tailored to the family’s objectives.

Why use growth shares rather than ordinary shares for the next generation?

Because growth shares only have value above a hurdle, their initial market value is low. That makes it cheap, in tax terms, to get future value into the hands of children, grandchildren or a trust today, rather than waiting and gifting more valuable shares later.

Do freezer shares qualify for 100% Inheritance Tax relief?

Generally no, where the company is an investment company such as a property-holding FIC. Business Property Relief is restricted for investment businesses, and from 6 April 2026 even qualifying trading-business assets are subject to a £2.5 million combined cap on 100% relief (50% relief above that, transferable between spouses). The IHT planning benefit of freezer shares in a FIC therefore comes from capping the founder’s share value and moving future growth out of their estate, not from BPR. Specialist advice is needed in either case.

Can growth shares be gifted into a family trust?

Yes, and this is a common approach. A discretionary trust gives the family flexibility over who benefits over time, and hold-over relief under section 260 TCGA 1992 may be available where the gift is an immediately chargeable transfer for IHT purposes, deferring the capital gains tax. The trust will have its own IHT regime to manage, including ten-yearly and exit charges, so the structure should be modelled before any shares are issued.

This article is general information, not tax advice. Family investment companies, freezer shares and growth shares involve interacting rules across IHT, CGT, income tax, corporation tax and trust law, and the right structure depends on individual circumstances. Speak to a qualified tax adviser before putting any of this in place.