Freezer shares and growth shares: keep control, pass on the growth.

A freezer share is held by the older generation and has its capital entitlement fixed, broadly at the company's value when the share is created. It often carries votes and limited or discretionary dividend rights. Because its value does not follow the investments up, the holder's estate is broadly fixed at that figure. There is no tax statute defining freezer shares: the effect comes entirely from the rights written into the articles of association.

A growth share takes the company's value above a set figure, called the hurdle, usually the value at the time the freezer shares are fixed. Below the hurdle, the growth share has little or no entitlement, so it participates only in future growth. The hurdle is set in the articles. A higher hurdle makes the growth share cheaper to subscribe for, and more of the future gain goes to its holder.

The parents' freezer shares are entitled to a fixed capital sum, so as the investments rise, the extra value belongs to the growth shares. The parents' estate still contains their freezer shares at their fixed value, plus any loan they made to the company, but it does not contain the growth. The saving depends on the investments growing and on the parents surviving long enough for any gifts of shares to drop out.

On a hypothetical open-market sale between a willing buyer and seller. Growth shares issued with a hurdle at or above the company's current value have mainly hope value, the prospect of future growth, which is usually low but not nil, and depends on the rights, the hurdle and the investment plan. HMRC's Shares and Assets Valuation team can examine the figure and no fixed discount applies, so the valuation must be supportable. Our team prepares it in-house when shares are created or gifted.

Altering the rights of existing shares in a close company is treated as a disposition by the shareholders for inheritance tax, and it cannot be a potentially exempt transfer. For capital gains tax, value passing from the old shares to the new class can be a value-shifting disposal. Issuing new growth shares at market value from the start avoids both problems. We usually start from a blank piece of paper for exactly this reason.

It is possible, with care, but it needs advice before anything is signed. Changing share rights can be a transfer of value for inheritance tax under section 98 and a value shift for capital gains tax. Whether it is worth the risk depends on the values, who holds the shares and how the rights change. A new company set up with the right classes from day one is often simpler.

Usually, but not always. In most families the parents hold the votes through their freezer shares so they decide on investments and dividends. In others the votes are split or held in another class. Control through the votes is not itself usually treated as a reservation of benefit in gifted shares, but it needs careful design and should be agreed with the family and in the articles.

They can, but this is a design choice. The articles might give them a limited or discretionary dividend right, or none. If the freezer shares carry large dividends, the parents are taking income that could have gone to the growth shares, which may be what they want or may defeat the purpose. Where the parents need income, loan repayments are usually the first source because they are not taxed as income.

Preference shares are an ordinary company law concept, usually carrying a fixed dividend with priority over other shares. Freezer shares are a planning term, and what they fix is the capital entitlement, broadly at today's value, so the holder's estate stops growing. A freezer share might also carry a fixed or limited dividend, but it does not have to. The label does not matter in law: only the rights in the articles do.

Control alone is not usually treated as one, provided the parents take no benefit from the shares they have given away. But the risk is real and must be managed. HMRC's examples treat a gift made on condition that the donor becomes a paid director with benefits, or a retained option to buy the shares back, as a reservation. Arm's-length directors' fees for genuine work are usually fine. We advise on this before any shares are gifted.

The freezer shares' fixed capital entitlement is only worth that much if the company's assets can pay it, and the growth shares sit below it, so the growth shares can end up worth nothing. That is the risk the children's side takes, and it is why the growth shares are valued low at issue. The parents' estate is not reduced by the fall, and the structure is no better than the investment returns.

Yes. A gift of freezer shares to an adult is a potentially exempt transfer, free of inheritance tax after seven years, and a disposal at market value for capital gains tax. The shares have a fixed entitlement, so their value should not rise much, but giving them away also gives up the votes if they carry them. Many parents keep freezer shares for life and deal with them in their wills.

The parents' shares are acquired by their personal representatives at market value with no capital gains tax, which is the uplift on death. There is no such uplift for assets held inside the company, so the company keeps its original base cost and a later sale by the company is taxed on the whole gain. That is one of the trade-offs of holding investments in a company rather than personally.

Yes. It is a common variation of the structure, and it moves value across two generations. The grandparents' estate is frozen, the parents hold growth shares, and a trust may hold more for the grandchildren. Gifts of growth shares from grandparents to minor grandchildren are generally outside the parental settlements rule, though reciprocal arrangements are caught. Each generation's position should be reviewed.

HMRC can open an enquiry and its Shares and Assets Valuation team can propose a different figure, which could create an inheritance tax or capital gains tax liability on the gift. A well-prepared valuation, with a reasoned basis, reduces the risk. We do not treat it as a clearance from HMRC. We recommend that families keep the valuation papers with their records.

There is no fixed figure, as it depends on the hurdle, how long you invest, the returns and the costs of running the company. Growth shares only gain value once the company's value passes the hurdle, so the benefit is greater with longer periods and higher returns. Our inheritance tax calculator and growth chart show a rough illustration, and we model your own numbers on the first call.