Freezer Shares and Growth Shares Explained

At ASWATAX, we carry out a significant amount of inheritance tax planning, with many families wanting to pass down assets to their children without incurring a significant tax charge. A common theme is parents who are not yet at retirement age who want to pass on wealth while retaining control of their business, enabling them to continue to grow their business and operations as they see fit. A tool that’s used to accommodate this balance is growth and freezer shares. These allow for the separation of current value from future growth.

This article will tell you all you need to know about growth and freezer shares and how they’re used in practice.

Contents

1. What Are Freezer Shares?
2. What Are Growth Shares?
3. Implementation Process
4. Case Study: Carol’s Company
5. Family Investment Companies (FICs)
6. Conclusion

What are freezer shares?

Freezer shares are not a standard legal classification of shares (like ordinary or preference shares). They are more of a bespoke planning tool. They are created by essentially changing the rights attached to a particular class of existing (or new) shares.

The purpose of freezer shares is to lock in the current value and divert future growth in the value elsewhere. A new class of shares is typically created for this purpose. This mechanism ensures the holder of the freezer shares maintains a fixed entitlement.

This is particularly useful if a company is expected to undergo significant growth and the owner of the company means to pass on the company to their descendants. By freezing todays value, the owner can ensure that future gains are passed on in a tax efficient way.

Example: A founder has shares worth £2m. The shareholder implements freezer shares corresponding to their £2m interest. The company eventually grows to have value of £3m. Instead of that additional £1m being added to the owners estate for IHT purposes, the ‘growth’ is sent elsewhere. (spoiler alert - this is where growth shares come in!).

What are growth shares

Growth shares are not a standard legal classification of shares either. Like freezer shares, they are a bespoke planning tool, created by issuing a new class of shares with rights that are deliberately limited at the outset.

The purpose of growth shares is to capture the future growth that has been diverted from the freezer shares. When they are issued, they would only have nominal value. Because they are basically ‘worthless’ at the time of issue, they can be issued to children with limited tax consequences, subject to the tax risks described below. They would only increase in value as the company increases in value.

This mechanism comes in use when parents want to retain control of their business but enable their children to partake in the monetary benefits of the business. The growth shares work hand in hand with the freezer shares to create the ideal situation for wealth distribution.

The growth shares complement the freezer shares by taking the ‘growth’ that has been diverted (callback to that spoiler alert earlier - here’s the payoff!)

Implementation

So growth and freezer shares sound pretty straightforward right now. But there are a few nuances to the process of implementing them.

First lets go to the freezer shares. You’ll need to find the current value of the company. It’s important to have a professional valuation undertaken at this point. HMRC would expect to see a thorough valuation that is clearly defensible. They have a history of challenging valuations of unusual share classes, so freezer and growth shares must be supported by robust evidence.

Once the valuation is in place, the freezer shares are created to lock that figure in. To create these shares, a range of documentation would need to be prepared: SH forms for creating new share classes, specifying rights attached to the shares, updating the Articles of Association, and drafting board minutes and resolutions.

After freezer shares are established, you’ll need growth shares. These need to complement the freezer shares in that the hurdle value coincides with the value of the freezer shares. In other words, the growth shares only participate in value above the frozen baseline. This ensures a clean split: the freezer shares preserve today’s value, while the growth shares capture tomorrow’s appreciation.

The growth shares would need similar documentation to freezer shares, with adjustments for the rights attached to shares.

Tax risks

Freezer and growth shares are not tax-free by default. Altering the rights attached to shares in a close company is a deemed disposition for inheritance tax purposes (IHTA 1984, s98) and cannot be a potentially exempt transfer. Any value shifted to the children’s shares when they are issued can be an immediate chargeable transfer, so the valuation of the shift matters. If the children are employees or directors, the employment-related securities rules can apply, bringing income tax and National Insurance into play. Capital gains tax value-shifting rules should also be considered.

Example: Freezer and Growth Shares in Practice

Carol owns 100 ordinary shares in a company valued at £2 million.

What are you searching for, Carol? Certainty, control, or the freedom to let future growth pass to the next generation?

Freezer and growth shares are designed to give you all three.

Step 1: Freezer shares

Carol’s 100 ordinary shares are re-designated as a new class of Freezer Shares.

The rights attached to the shares are as follows

• Fixed value entitlement capped at £2 million (the current value).
• No participation in future growth. Any increase above £2 million is excluded.
• Voting rights retained, so Carol continues to control the company.
• Dividend rights limited to a fixed return.

Step 2: Growth shares

A new class of Growth Shares is issued to Carol’s children.

Rights attached to Growth Shares:

• Participation only above the hurdle. Value above £2 million (the frozen baseline).
• No entitlement to the frozen value. They start with negligible worth at issue.
• Voting rights restricted, so Carol retains control.
• Dividend rights linked to profits once the hurdle is exceeded.

Outcome: Carol retains control and certainty. The company continues to grow and Carol’s IHT exposure does not. Carol’s frozen value remains in her estate, and if the company is trading, Business Relief gives 100% relief only on the first £2.5 million of qualifying business and agricultural property per person.

Certainty, control, or the freedom to let future growth pass to the next generation?

Family Investment Companies and Share Planning

Family Investment Companies (FICs) are often used as a vehicle for passing wealth down the generations in a controlled and tax-efficient way. They allow parents to retain decision-making power while gradually transferring economic value to children.

Freezer and growth shares fit naturally into this structure:

• Freezer shares can be allocated to the founders, locking in today’s value and ensuring their entitlement remains fixed.
• Growth shares can be issued to children or trusts, capturing any future appreciation in the company’s assets.

This combination allows families to separate control from value. Parents keep voting rights and certainty, while children benefit from long-term growth.

In practice, FICs provide the corporate wrapper, and freezer/growth shares provide the mechanism for splitting value between generations. Together, they create a flexible framework for succession planning and wealth distribution.

Conclusion

Freezer and growth shares are a brilliant tool, particularly when employed as part of a FIC. At ASWATAX, we have extensive experience in setting up FICs and implementing growth and freezer shares to protect your wealth.