Freezer Shares for Inheritance Tax Planning: How to Freeze Your Estate and Pass On Growth

Quick answer: An estate freeze fixes the value of what you own today for inheritance tax (IHT) and diverts future growth to your children or a trust. It is done with freezer shares, which carry a fixed capital entitlement, and growth shares, which take everything above it. It can be built into an existing company or into a new Family Investment Company (FIC). It works only if the growth shares are valued properly when they are created, the capital gains tax (CGT) and income tax consequences are managed, and the clearances and anti-avoidance rules are respected.

This article is general information. The tax treatment depends on the facts of each family and company, and the rules change. Please take advice before acting.

What a freeze is, and why it works for IHT

IHT is charged on the value of your estate at death, and on some gifts made in the seven years before. If you own a company that is worth £4m today and £10m in fifteen years, the whole £10m is in your estate. The growth is taxed at 40% just like the original value.

A freeze changes who owns the growth, not who runs the company. The shares you keep are entitled to a fixed amount of capital, broadly today's value. A second class, the growth shares, is entitled to value above that figure. The growth shares are held by the next generation or a trust, so value that builds after the freeze is never in your estate.

You can keep control, because freezer shares usually carry the votes. No cash leaves you, because you give away only the right to future growth. And the faster the company grows, the more tax is saved.

Tax law has no definition of a freezer share. The effect comes from the articles, which is why drafting and valuation carry so much weight. Our article on freezer shares and growth shares explained covers the mechanics. This article looks at the planning decisions and tax detail around them.

The two main routes

Route 1: freezing an existing trading or holding company

If you already own the company, the freeze is usually done by a share reorganisation. Your existing shares are re-designated or exchanged into freezer shares (fixed capital entitlement, often with a fixed dividend), and a new class of growth shares is issued to the next generation or a trust. An alternative is to insert a new holding company, with the freezer and growth shares created in the new top company.

This suits family businesses where the owner wants to keep control and let the growth go to the family. Because it changes the rights of existing shares, it needs more care:

• For IHT, altering the rights of shares in a close company is treated as a disposition by the shareholders. HMRC's view is that it cannot be a potentially exempt transfer, so the value shifted can be an immediate chargeable transfer. That value is usually small if the growth shares carry only hope value.
• For CGT, the reorganisation must qualify under the share reorganisation rules so that no disposal arises. This is where clearance matters.
• If the company is trading, Business Relief may apply to both classes, subject to the conditions.

Route 2: a Family Investment Company

A FIC is a new company, usually funded by the parents through a loan, share subscription or both, which holds investments or property. Freezer and growth shares are created at the start. The parents hold freezer shares with a fixed capital entitlement, and the children or a trust subscribe for growth shares. Because everything is new, there is no reorganisation of existing rights.

This is the cleaner route where the wealth is cash, investments or property rather than a trading business. A FIC is not a trading company, so Business Relief will not normally be available. Our Family Investment Company service page explains how we decide.

Valuation: why a low value for growth shares must be supportable

Growth shares are usually issued with a hurdle set at today's value. They give the holder nothing unless the company grows beyond it. So their value at issue is low, because it reflects only the chance of future growth.

Low is not nil, and a low figure must be defended. HMRC's Shares and Assets Valuation team deals with unquoted shares and will challenge a figure that ignores the rights, the likely growth, the dividend entitlements and the time horizon. If the value is too low, the IHT value transferred, the CGT market value on a gift and the income tax value for any employee shareholders may all be understated.

A sound valuation sets out the company's value, the rights of each class, the hurdle, a reasoned view of growth and risk, and the basis for any discount. It is prepared before the shares are issued. A valuation check with HMRC can add comfort but does not replace it. Freezer shares are valued on their fixed entitlement plus any dividend and voting rights, and holdings of spouses can be aggregated.

Passing on the growth shares: gifts and trusts

If growth shares are newly issued at their full market value, there may be no gift at all. If they are given, or issued at an undervalue, the gift rules apply.

Gift to an individual. A gift of growth shares to an adult child is generally a potentially exempt transfer. No IHT is due if you survive seven years. If you die within seven years, the gift uses the nil-rate band (£325,000) first, and tax at up to 40% may apply to the excess, reduced by taper relief for deaths three to seven years after the gift.

Gift into a trust. A gift into most trusts is a chargeable lifetime transfer. Value above the available nil-rate band is charged at 20% on entry, with a possible further charge on death within seven years. A discretionary trust also faces ten-yearly charges of up to 6% and exit charges, and must be registered on HMRC's Trust Registration Service. In return it gives control, flexibility and protection from divorce.

For growth shares with only hope value, the amounts at stake on the gift itself are often small. The bigger saving comes later, as growth builds up outside your estate.

Capital gains tax on gifts and holdover relief

A gift of shares to anyone, including your child, is a disposal for CGT at market value, even though no money is paid. Growth shares issued at a low value usually produce a small gain or none, which is another reason to act early.

Holdover relief can defer a gain on a gift:

• Section 165 TCGA 1992 covers gifts of shares in a trading company (or the holding company of a trading group), so it suits the freeze of an existing business. The claim is made jointly with the recipient.
• Section 260 TCGA 1992 covers gifts that are chargeable lifetime transfers, typically into a discretionary trust. It can apply to shares in a FIC, but not where the trust is settlor-interested.

Holdover defers the gain and does not remove it, because the recipient takes over your base cost. FIC shares will not normally qualify under section 165, so growth shares for a FIC are best issued at the start.

Income tax traps

Three areas catch families who are focused only on IHT.

Settlements legislation. If you keep an interest in the income from what you have given, it can be taxed on you whoever receives it. An outright gift with no right for the donor to benefit normally falls outside. Dividend waivers are a common problem here, which is why separate share classes are the sounder way to direct dividends.

The £100 rule for minor children. If a parent gives an unmarried child under 18 shares, or the money for them, and the income from the gift is over £100 a year, the whole amount is taxed on the parent. Gifts from grandparents are generally outside, provided the funds are genuinely theirs. Our article on children under 18 as shareholders of a FIC deals with this.

Employment-related securities. If family members receiving growth shares work in the business, the shares can be treated as acquired through their employment. If they are issued below market value, income tax and National Insurance can arise. The valuation, how the shares are offered and what the individuals do for the company all matter.

Business Relief from 6 April 2026, and why freezing matters more

From 6 April 2026, 100% Business Relief and Agricultural Relief apply only to the first £2.5m of qualifying property per person, and the allowance can be shared with a surviving spouse or civil partner in some circumstances. Qualifying value above that is relieved at 50%, giving an effective IHT rate of 20%. Shares quoted on AIM get 50% relief and no longer qualify for the 100% rate.

For a trading company worth more than the allowance, growth that Business Relief once covered can now bear IHT. The allowance is a fixed amount that does not rise with the company. A freeze that places future growth in the next generation's hands takes it out of the estate altogether, which protects against the cap and any later change. Ownership rules still matter: shares generally need to have been owned for two years, and for a gifted holding to keep relief on a death within seven years the recipient must normally still hold the shares and the company must still qualify.

Pensions from April 2027. From 6 April 2027, most unused pension funds and death benefits come within the estate for IHT. That enlarges the part of the estate needing a plan, and a freeze deals with the other assets. A regulated financial adviser should be involved on the pension itself.

HMRC clearance and anti-avoidance

A freeze through a reorganisation or new holding company involves the share exchange and reorganisation rules in TCGA 1992. Where those rules are relied on, a statutory clearance is available:

• Section 138 TCGA 1992 allows you to ask HMRC to confirm that the reorganisation or exchange will not be caught by the anti-avoidance provisions, so the transaction is not treated as a disposal.
• Section 701 ITA 2007 allows a clearance on the transactions in securities rules, which can apply where income tax advantages are obtained from a reorganisation.

We design the step plan, prepare the application, and have made 100+ HMRC clearance applications. Clearance replaces an assumption with HMRC's written view, but it covers only what you disclose, so the application must describe the transaction fully.

From 26 November 2025, the anti-avoidance rule for share exchanges and reorganisations was strengthened, and relief can be denied where a main purpose is to avoid tax. The commercial reasons for the freeze therefore matter. Succession, family control and keeping the business in the family are easier to defend than IHT saving alone. The reasons should be real and recorded, for example in board minutes, before any step is taken.

The gift with reservation rules also apply if you keep a benefit from the shares you give away. Keeping the votes is generally acceptable, but a right to reacquire the growth shares or take their dividends can be a reservation.

A worked example

All figures are hypothetical and round, and they ignore corporation tax, dividends, the nil-rate band and other reliefs.

A family holding company is worth £4m today. The owners expect it to be worth £10m in fifteen years.

Without a freeze. The £10m is in their estate on death. At 40%, the IHT bill is £4m.

With a freeze. The owners hold freezer shares worth £4m, fixed. Growth shares, with a hurdle of £4m, are issued to their children, supported by a valuation that gives a low value for the hope of future growth. Fifteen years later the company is worth £10m. The freezer shares are still worth £4m and the growth shares hold £6m.

• IHT on the freezer shares at 40%: £1.6m.
• The £6m of growth is outside the estate: IHT saved on the growth is £2.4m.

If the company is trading and Business Relief applies, the first £2.5m is covered at 100% and the picture changes, so a freeze is modelled on the actual assets and reliefs, not the headline figure. If the company does not grow there is no saving, and if it falls below £4m the freezer shares carry the loss.

Common mistakes

• An unsupported low valuation for the growth shares, or none at all.
• Altering existing shares without clearance or without checking the IHT consequences.
• Overlooking the £100 rule when growth shares go to children under 18.
• Using dividend waivers instead of separate share classes.
• Keeping a benefit from gifted shares, such as a right to buy them back.
• Forgetting employment-related securities where recipients work in the business.
• Assuming Business Relief solves it, despite the cap from 6 April 2026.
• No record of commercial reasons, now that a main purpose test applies.
• Freezing a figure so high that you cannot afford to live without the capital.

FAQs

Can I keep control after freezing?

Usually yes. Freezer shares often carry the votes. Control through votes is not generally a reservation of benefit, but benefits tied to the gifted shares, such as a right to buy them back, can be.

Does a freeze trigger tax when it is set up?

It can. Altering existing shares in a close company is a disposition for IHT, and a gift of growth shares is a CGT disposal at market value. With low-value growth shares both are often small, but they depend on the valuation.

Is it better to use a FIC or freeze my existing company?

It depends on what you own. For cash, investments or property, a FIC with freezer and growth shares from the start is usually simpler. For a growing trading business, reorganising the company or inserting a holding company may suit better, with clearance and Business Relief in the comparison.

How do the 2026 Business Relief changes affect freezing?

Value above the £2.5m allowance is relieved at only 50%, so growth that Business Relief once covered can now bear IHT. A freeze that moves future growth outside the estate has become more valuable for larger businesses.

Do I need HMRC clearance?

It is not compulsory, but where a reorganisation or share exchange is used we strongly advise it. Clearance gives written confirmation on the points disclosed. It does not cover IHT valuation, which must be supported separately.

Talk to us

If you are considering a freeze, we will look at what you own, what you need to keep and which route fits, and we design the step plan so the valuation, the clearances and the tax points are dealt with before anything is signed. Book a call with our team to talk it through.

For business owners thinking about the wider picture, our page on succession and retirement planning explains how a freeze fits with a later sale or hand-over.

Sources

• Inheritance Tax gifts and the seven-year rule: https://www.gov.uk/inheritance-tax/gifts
• Trusts and Inheritance Tax: https://www.gov.uk/guidance/trusts-and-inheritance-tax
• Business Relief (Inheritance Tax): https://www.gov.uk/business-relief-inheritance-tax
• Inheritance Tax Act 1984 section 98 (alterations of share rights in close companies): https://www.legislation.gov.uk/ukpga/1984/51/section/98
• TCGA 1992 section 138 (clearance for reconstructions): https://www.legislation.gov.uk/ukpga/1992/12/section/138
• TCGA 1992 section 165 (relief for gifts of business assets): https://www.legislation.gov.uk/ukpga/1992/12/section/165
• TCGA 1992 section 260 (gifts on which Inheritance Tax is chargeable): https://www.legislation.gov.uk/ukpga/1992/12/section/260
• ITA 2007 section 701 (counteraction of income tax advantages, clearance): https://www.legislation.gov.uk/ukpga/2007/3/section/701
• Income of a settlor's minor children (ITTOIA 2005 section 629): https://www.legislation.gov.uk/ukpga/2005/5/section/629
• Capital gains tax rates: https://www.gov.uk/capital-gains-tax/rates
• Register a trust (Trust Registration Service): https://www.gov.uk/guidance/register-a-trust-as-a-trustee