Share classes
Freezer shares explained: keeping today's value, passing on tomorrow's growth
How freezer shares fix the parents' value while growth shares take the future gains, how they are valued, and the tax traps to avoid.
A freezer share is one of the most useful, and most misunderstood, parts of a family investment company. The idea is easy to state: keep today's value, and pass on tomorrow's growth. The detail is where care is needed.
The basic idea
When a family investment company (FIC) is set up, the parents usually put in the money, by subscribing for shares, lending to the company, or both. If they simply held ordinary shares, everything the company later earned would grow their estate, and inheritance tax would apply to the lot.
With freezer and growth shares, the company has two classes:
- Freezer shares, usually held by the parents (or grandparents). Their capital entitlement is fixed, broadly at the company's value when the shares are created. They often carry the votes.
- Growth shares, held by the children, grandchildren or a trust. They take the capital value above the frozen figure, so they gain only if the company grows beyond that hurdle.
Nothing in tax law defines these shares. The effect comes from how the company's articles of association are written. That is why the drafting matters.
A simple illustration
Suppose the parents put £1m into a FIC. The freezer shares are fixed at £1m. If the investments later grow to £2m, the parents' shares are still entitled to £1m, and the other £1m belongs to the growth shares.
At a 40% inheritance tax rate, the growth of £1m, had it stayed in the parents' estate, would have meant £400,000 of tax. Because it built in the growth shares, it did not. That is a round-number illustration only: it ignores the corporation tax the company pays, any dividends, how the money was funded and the seven-year rules.
The diagram on this page shows the same idea over time.
Why parents often keep the votes
Because the freezer shares usually carry the votes, the parents can stay in control of the company and the investments while the growth builds for the next generation. Control through votes is not usually a reservation of benefit by itself. HMRC's published examples treat benefits linked to the gift differently: a gift made on condition that the donor becomes a salaried director with a car, or one where the donor keeps an option to buy the shares back, can be a gift with reservation. Pre-existing, commercial director's pay is not.
This is a risk to manage and not a point to wave away. We discuss retained control and any benefit taken from the gifted shares carefully with each family.
How the shares are valued
Shares in a private company are valued for tax on a hypothetical open-market sale. There is no fixed minority discount. Where growth shares have a hurdle at or above the company's current value, they have what is sometimes called hope value at issue: low, but not nil. We prepare the valuation of freezer and growth shares in-house whenever they are created or gifted.
Freezer shares are valued on their fixed entitlement plus any dividend or voting rights. Shares held by a spouse can be aggregated with yours for valuation, which can raise the value of each holding.
Start with new shares, not altered ones
The cleanest way to build the structure is to issue the growth shares new, at market value, when the company is set up. Changing the rights on shares that already exist is more difficult. In a close company it is treated as a disposition by the participators for inheritance tax, which cannot be a potentially exempt transfer, and for capital gains tax it can be a value shift that is treated as a disposal. It is possible with advice, but it is rarely where we start.
Tax points to keep in mind
- Gifts of growth shares to an adult child are potentially exempt transfers, so no inheritance tax arises if the donor survives seven years.
- Capital gains tax applies to a gift of shares at market value. The cost is kept low by gifting early, when value is small.
- Minor children. If a parent gives shares, or the cash to buy them, to a child under 18, dividends above £100 a year are taxed on the parent. A trust is a common alternative.
- The company still pays tax. A FIC that mainly holds investments pays corporation tax at 25% on taxable profits such as interest and gains. Most dividends it receives are exempt.
- Dividends are best directed using separate share classes rather than dividend waivers.
Who freezer shares suit
Freezer shares make most sense where three things are true. The parents have money they will not need for their own living costs, so they can afford to fix their share of the value. They expect the investments to grow, because with no growth there is nothing to redirect. And they want to keep control while the next generation builds its own holding.
They are a poor fit where the parents may need the capital back in full, where the company is likely to be small, or where the family is unsure how it wants growth shared. In those cases a simpler arrangement, or no company at all, may serve better. A conversation about what you need to keep is always the first step.
Where freezer shares fit in the wider design
Freezer shares are one tool. In a blended FIC, a discretionary trust also holds growth shares, giving flexibility and some protection. How you fund the company, whether by loan, shares or assets, affects what you can take back, as we explain in funding a FIC with a loan.
For the full picture of how the classes work, see our pages on freezer and growth shares and family investment company share classes. To get a feel for the numbers, try our inheritance tax calculator, and if you would like to talk it through, book a free call. We respond the same working day.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Law as at 9 October 2026. Please speak to us before acting.
