Freezer shares and growth shares are commonly used as part of strategic wealth and succession planning, particularly within family-owned businesses. Freezer shares are designed to fix the current value of an owner’s interest, helping to preserve existing wealth for the senior generation, while growth shares allow future increases in company value to accrue to younger family members.

This structure enables a clear separation between existing equity and future growth, supporting orderly succession planning and potential inheritance tax efficiency. When implemented correctly, freezer and growth share arrangements can help align long-term business growth with multi-generational wealth transfer objectives, while maintaining financial stability and control.

Key Takeaways

• Freezer shares can be used to fix the current value of an individual’s interest in a business, helping to preserve existing equity for senior family members, while growth shares allow future increases in value to accrue to younger generations.
• When structured appropriately, the combined use of freezer and growth shares may support inheritance and capital gains tax planning objectives, contributing to a more efficient transfer of wealth between generations.
• The implementation of these share structures requires careful legal and tax planning, together with clear governance arrangements, to maintain control, ensure compliance, and support long-term family engagement in the business.

Understanding Freezer Shares and Growth Shares

At the core of effective wealth and succession planning is the use of freezer shares and growth shares. These share classes perform complementary functions by separating the preservation of existing value from the allocation of future capital growth. Freezer shares are typically structured to fix the current value of an individual’s interest, allowing senior family members to retain economic value and, where appropriate, an income stream, while limiting further capital appreciation in their hands.

Growth shares are structured to participate in the future increase in the value of the business once certain thresholds are met. This enables younger family members to benefit from business expansion and value creation over time. By linking future growth to the next generation, growth shares can support engagement, long-term involvement, and a clearer alignment between ownership and contribution to the business.

Used together, freezer shares and growth shares provide a balanced framework within family investment companies and trading businesses. While freezer shares protect existing wealth, growth shares are directed toward future appreciation, allowing value retention and growth to coexist. This approach can support long-term financial stability, orderly succession, and the preservation of family wealth across generations, while maintaining flexibility for future business development.

Freezer Shares: Preserving Existing Equity Value

Freezer shares are commonly used to preserve the existing equity value held by senior family members as part of succession and wealth-planning strategies. By fixing the current value of an individual’s shareholding, freezer shares limit further capital growth in the hands of the older generation while allowing the business to continue expanding.

These shares are often structured to carry preferential rights, such as a fixed or preferred dividend entitlement, which can provide a predictable income stream. This arrangement can offer financial stability for senior shareholders while enabling future increases in company value to accrue elsewhere.

A key characteristic of freezer shares is their ability to protect existing equity from dilution as the business grows. By fixing value at a defined level, freezer shares help retain a stable economic interest for older shareholders and support an orderly transition of future growth to the next generation. This approach can facilitate long-term wealth preservation while maintaining continuity and balance within the ownership structure.

Growth Shares: Capturing Future Company Growth

Growth shares are designed to participate in future increases in company value and are commonly issued as a separate class of shares, often referred to as B shares. These shares are structured to benefit from capital growth as the business expands, allowing younger family members to participate in the company’s long-term success. Unlike freezer shares, growth shares typically have limited or no entitlement to dividends or voting rights and are instead designed to deliver value once the company exceeds an agreed valuation threshold.

This approach helps align the interests of the next generation with the future performance of the business, encouraging engagement and a longer-term perspective on ownership. By linking value to growth rather than existing equity, growth shares can support succession planning while reinforcing accountability and involvement among younger shareholders.

When used within family investment companies or family-owned businesses, growth shares provide a mechanism for transferring future value without disturbing existing ownership structures. This can support sustainable business development while ensuring that future growth is allocated in a manner consistent with the family’s strategic and succession objectives.

Tax Efficiency with Freezer and Growth Shares

One of the principal reasons families consider freezer and growth share structures is their potential role in tax-efficient succession and wealth planning. When structured correctly, these arrangements can help manage exposure to inheritance tax and capital gains tax by separating existing value from future growth, allowing wealth to be transferred in a controlled and measured way.

Given the complexity of UK tax legislation, professional tax advice is essential when implementing freezer and growth shares. Careful structuring is required to ensure that the arrangements operate as intended and comply with relevant tax rules, helping to mitigate the risk of unexpected tax charges for either generation.

As part of a wider estate and succession planning strategy, the considered use of freezer and growth shares can contribute to improved tax efficiency and long-term financial stability. When aligned with the objectives of a family investment company, this approach can support effective wealth preservation while facilitating future growth in a compliant and sustainable manner.

Inheritance Tax Benefits

Freezer shares are commonly used to limit the value of an individual’s shareholding for inheritance tax purposes by fixing the value of existing equity at the point of implementation. By capping further capital growth in the hands of the senior generation, any future increase in value may be attributed elsewhere, potentially reducing the value subject to inheritance tax on death.

Growth shares complement this approach by allocating future increases in company value to other shareholders, often younger family members. Where structured appropriately, this can allow future growth to fall outside the senior generation’s estate for inheritance tax purposes, subject to the usual rules and conditions.

When used together, freezer and growth shares can form part of a broader inheritance tax planning strategy by separating existing value from future appreciation. This framework can support the orderly transfer of wealth across generations while helping to manage inheritance tax exposure, provided the arrangements are implemented carefully and reviewed regularly as circumstances change.

Capital Gains Tax Considerations

Capital gains tax (CGT) is an important consideration when implementing freezer and growth share arrangements, as the creation or transfer of shares can give rise to a disposal for CGT purposes. In particular, where value is shifted between share classes, the existing shareholder may be treated as disposing of part of their interest, potentially triggering a capital gain.

With appropriate planning, it may be possible to defer an immediate CGT charge. In certain circumstances, reliefs such as gift hold-over relief can apply, allowing any chargeable gain to be deferred until a future disposal. This can help manage tax exposure and avoid crystallising CGT at the point the share structure is implemented.

Careful structuring of the transaction is essential to ensure that any available reliefs are correctly applied. This may include assessing eligibility for business asset gift relief and ensuring that the conditions for deferral are met. Taking professional advice can help ensure that CGT considerations are addressed effectively and that the share restructuring aligns with the family’s wider tax and succession planning objectives.

Implementing Freezer and Growth Shares in Family Investment Companies

Implementing freezer and growth shares within a family investment company requires careful planning, professional advice, and appropriate legal documentation. The process typically involves several key steps to ensure the arrangements operate as intended and remain compliant:

• Establishing separate share classes to distinguish between existing value (freezer shares) and future growth (growth shares), allowing value and appreciation to be allocated appropriately
• Undertaking a robust and supportable valuation of the family investment company to determine the starting point for the share structure
• Amending the company’s Articles of Association to reflect the rights and restrictions attached to each share class

Ongoing legal compliance and effective governance are essential to ensure the share structure remains aligned with both tax requirements and family objectives. This commonly involves working closely with tax and legal advisers to address inheritance tax, capital gains tax, and income tax considerations, as well as to maintain clarity around control and decision-making.

By balancing the preservation of existing value with the allocation of future growth, freezer and growth shares can support an orderly transition of both wealth and ownership. When implemented correctly, this approach can facilitate long-term succession planning while maintaining stability and engagement across generations.ezer and growth shares ensure a smooth transition of wealth and control to younger generations.

Valuation and Share Structure

TThe valuation process is a critical step in establishing freezer and growth share arrangements within a family investment company. A robust and well-documented valuation underpins the effectiveness of the structure and typically involves:

• Designing freezer shares to fix the value of existing shareholdings, allowing senior family members to preserve current equity
• Undertaking an accurate valuation of the company’s assets and overall business value at the point the structure is implemented
• Issuing A shares to represent the existing value of the company
• Structuring B shares so that they participate only in future growth above an agreed valuation threshold

A properly supported valuation ensures that the value attributed to the freezer (A) shares is defensible and aligned with their role in long-term wealth planning. In addition, shareholder agreements play an important role in clarifying ownership rights, transfer provisions, and governance arrangements within the family investment company.

By clearly distinguishing between current market value and future growth potential, families can allocate value more effectively and support a smooth and orderly transition of wealth and ownership across generations.

Updating Articles of Association

Updating the Articles of Association is a necessary step when introducing freezer and growth share structures. The Articles must be amended to reflect the creation of different classes of shares, commonly A shares representing existing value and B shares representing future growth. These amendments ensure that the rights, restrictions, and economic entitlements attached to each share class are clearly defined and legally enforceable.

Aligning the Articles of Association with the family’s governance objectives is essential to ensure that the share structure operates as intended. This process requires careful legal drafting to support wealth preservation, future growth allocation, and long-term control within the family investment company.

Issuing Shares to Family Members

Issuing shares to family members is a key step in implementing freezer and growth share arrangements within a family investment company. Growth shares are commonly allocated to younger family members or settled into trusts for their benefit, either by way of gift or as part of a wider succession strategy.

This approach allows senior family members to retain control and economic value through freezer shares, while enabling future growth to accrue to the next generation. When structured appropriately, the use of both share classes can support inheritance planning, succession objectives, and the long-term alignment of family interests within the business.

Legal and Governance Aspects

Careful consideration of legal and governance matters is essential to the successful implementation of freezer and growth share structures. Compliance with company law and tax requirements ensures that the shares function as intended and remain aligned with the family’s long-term objectives.

Effective governance arrangements help preserve family control, manage decision-making, and reduce the risk of disputes as ownership evolves. Clear frameworks for governance and communication are particularly important during generational transitions to ensure continuity and stability within the family investment company.

Shareholder Agreements

Shareholder agreements play an important role in defining the rights and obligations of shareholders within a family investment company. These agreements typically set out provisions relating to share transfers, dividend policies, decision-making, and exit arrangements, helping to manage expectations and reduce the risk of conflict.

By clearly documenting roles, responsibilities, and agreed outcomes, shareholder agreements support effective governance and provide certainty for all parties. This contractual framework helps align family members’ interests and contributes to the long-term stability and success of the business.

Voting Rights and Control

Maintaining appropriate levels of control while facilitating generational succession is a central consideration in family investment companies. Growth shares are often structured with limited or no voting rights, allowing senior shareholders to retain control while enabling younger family members to benefit economically from future growth.

This balance supports continuity in management and decision-making while encouraging engagement from the next generation. Clearly defined voting and control arrangements help reduce the risk of disputes and support smoother transitions over time.

Case Study: Effective Use of Freezer and Growth Shares

The following example illustrates how freezer and growth shares can be used in practice within a family investment company to balance value preservation and future growth. It demonstrates the importance of careful planning, valuation, and governance in achieving tax efficiency and long-term family objectives.

In this scenario, freezer and growth shares were implemented to protect existing equity for the senior generation while allocating future growth to younger family members. This approach supported both wealth preservation and continued business development across generations.

Scenario Overview

In this case, the family investment company sought to preserve value for the senior generation while encouraging active involvement from younger family members. The original shareholder held A shares with rights to income and capital up to the company’s current valuation, providing stability and preserving existing equity.

To facilitate succession, B shares were introduced to participate in future growth above the agreed valuation threshold. These growth shares were allocated to the next generation or to a trust established for their benefit, supporting long-term engagement and alignment with the company’s future success.

Implementation Strategy

The implementation involved retaining freezer (A) shares with the senior generation while issuing growth (B) shares to capture future increases in value. The structure ensured that existing wealth and control were preserved, while future growth was directed to the next generation.

This structured approach enabled the family to balance immediate control with future financial participation, supporting effective succession planning and long-term business continuity.

Outcomes and Benefits

Following implementation, the family investment company was able to support continued growth while maintaining stability and control. The allocation of future value to the next generation encouraged engagement and long-term involvement, contributing to sustainable business development.

By separating existing value from future growth, the freezer and growth share structure supported wealth preservation, reduced the risk of disputes, and helped ensure the continued success of the business across generations, creating a durable framework for long-term family ownership.

Summary

In summary, the strategic use of freezer and growth shares offers a powerful approach to wealth planning within family investment companies. By preserving existing equity and capturing future growth, these share structures provide a balanced framework for long-term wealth preservation and sustainable business success. The tax efficiencies and legal considerations further enhance the benefits of these strategies, ensuring that families can effectively manage their wealth across generations.

As you consider implementing freezer and growth shares in your own family investment company, remember the importance of careful planning, legal compliance, and engaging with tax advisers. These steps will ensure that you maximise the benefits of these share structures, creating a legacy of financial stability and growth for future generations. Embrace these strategies to secure your family’s financial future and promote long-term prosperity. Read more on Setting Up Family Investment Company

Frequently Asked Questions

What are freezer shares?

Freezer shares are investment vehicles that help preserve the value of assets for older generations, ensuring fixed returns and predictable income for them while facilitating future growth for younger family members.

How do growth shares benefit younger generations?

Growth shares benefit younger generations by allowing them to participate in the future capital appreciation of a business, aligning their interests with its growth without immediate financial returns like dividends or voting rights. This potential for future wealth can significantly support their financial goals.

What are the tax benefits of using these shares?

Using freezer and growth shares can provide substantial tax benefits, including inheritance tax relief and exemptions from capital gains tax. Effective planning with a tax adviser can help you optimise these advantages.

How do you implement freezer and growth shares in a family investment company?

To implement freezer and growth shares in a family investment company, create distinct share classes, accurately value the company, and update the Articles of Association accordingly. Ensure legal compliance and effective tax planning to facilitate a successful implementation.

How do shareholder agreements help in managing family investment companies?

Shareholder agreements are essential for managing family investment companies as they clearly outline shareholders’ rights and obligations, helping to prevent conflicts and align expectations. This clarity promotes harmony and effective governance within the family business.