Freezer and growth shares are at the heart of how most modern family investment companies (FICs) handle succession. They let the founding generation lock in today’s value of their wealth while passing future growth to their children or grandchildren. With the inheritance tax landscape shifting from 6 April 2026, getting this share structure right matters more than ever. This guide walks through how the two share classes work, what the 2026 tax rules now mean in practice, and how to use them as part of a wider family wealth strategy.

Key Points

• Freezer shares hold the existing value of the company for the founders, while growth shares hand all future appreciation to the next generation.
• The two classes work together to manage inheritance tax exposure, but it is important to understand that FIC shares do not qualify for Business Property Relief, so the planning relies on lifetime gifting and the seven year rule rather than BPR.
• Careful share valuation, updated articles of association and a proper shareholders’ agreement are what make the structure stand up if HMRC takes a closer look.

Freezer Shares and Growth Shares in Family Investment Companies

Inside a FIC, freezer shares and growth shares are the two building blocks most advisers use to split the company’s value across generations. Freezer shares fix the present value of the assets in the founder’s hands, so any future increase in the FIC sits elsewhere. Growth shares pick up that future increase, accruing value once the company exceeds a set hurdle. Together they let parents bring younger family members into the wealth without giving up day to day control, and they form one of the more practical responses to the IHT changes that took effect on 6 April 2026.

Freezer Shares: Holding the Existing Value

Freezer shares are designed to do one thing well, which is to keep the founder’s slice of the company at its current value. They usually carry a fixed entitlement on a winding up or share buyback, equal to the value of the FIC at the moment the structure is set up. Anything the company earns or grows beyond that point is captured by another share class, not by the freezer shares.

For founders this brings two practical benefits. They keep predictable rights to capital and, where the freezer shares carry a preferred dividend, a measurable income stream. They also retain control through the voting rights attached to those shares, which is often the deciding factor for parents who are not yet ready to step back. The freezer shares essentially act as an anchor: today’s value sits with the founder, while tomorrow’s growth is directed elsewhere by design.

Growth Shares: Capturing Future Appreciation

Growth shares are the mirror image. They are issued with little or no value at the outset, typically with a hurdle equal to the current value of the company, so they only start participating in returns once the FIC’s value rises above that threshold. From that point onwards, all of the upside flows to the growth shareholders, normally the founders’ children or trusts set up for their benefit.

Because the growth shares have a low value when issued, gifting them is a far smaller transfer for IHT purposes than gifting ordinary shares would be. The future appreciation accrues directly in the children’s hands rather than in the parents’ estate. Growth shares can also be drafted with limited or no voting rights, which is how parents keep strategic control even after the children become shareholders. This is the core appeal of the structure: it transfers economic benefit without transferring decision making power.

Tax Position of Freezer Shares and Growth Shares from April 2026

Tax sits at the centre of every conversation about freezer and growth shares. The 2026 rules have not changed how the share classes themselves work, but they have changed how families need to think about timing and combined planning. Founders need to weigh up inheritance tax, capital gains tax and the corporation tax position of the FIC together, rather than looking at any one of them in isolation.

Inheritance Tax

This is where the biggest 2026 update sits. From 6 April 2026, 100% Business Property Relief (and Agricultural Property Relief) is capped at a combined £2.5 million per individual, with 50% relief on anything above that. The allowance is transferable between spouses and civil partners, so a married couple can potentially shelter up to £5 million of qualifying business assets, with anything in excess attracting an effective 20% IHT rate.

A point worth being clear about: FIC shares do not qualify for BPR. A FIC is an investment company, and the BPR rules exclude businesses that consist wholly or mainly of holding investments. The IHT planning value of freezer and growth shares in a FIC therefore does not come from BPR. It comes from the fact that the growth in the company’s value is captured by shares held by the next generation, so it sits outside the founders’ estate from the start. Gifts of shares between family members are treated as Potentially Exempt Transfers, which fall out of the founder’s estate after seven years, with taper relief applying between years three and seven.

The April 2026 BPR cap matters here for a different reason. Many families who used to rely heavily on BPR for trading businesses are now looking at FICs alongside, or instead of, traditional structures, since the freezer and growth share approach can move large amounts of future value out of the estate without depending on a relief that has just been narrowed.

Capital Gains Tax

Issuing growth shares to family members is a chargeable event for CGT, and HMRC pays close attention to the valuation. Provided the hurdle is set at or just above the current value of the company and the growth shares are properly drafted, their initial market value should be modest, which limits the CGT exposure on the gift. HMRC is unlikely to accept a nil valuation, so a defensible third party valuation is essential.

Section 165 holdover relief, often called gifts of business assets relief, is generally not available on a gift of FIC shares because the company is not a trading company. Section 260 holdover, which applies to gifts that are immediately chargeable to IHT, can apply where shares are settled into a relevant property trust, but this comes with the trust’s own IHT regime. Practical answer for most families: gift growth shares early, while their value is low, rather than relying on holdover relief later.

Corporation Tax and Income Tax Efficiency

For 2026/27 the main rate of corporation tax remains 25%. FICs are normally close investment holding companies and so cannot use the small profits rate of 19%, regardless of profit level. That said, dividends a FIC receives from other UK and most overseas companies are generally exempt from corporation tax under the dividend exemption, which keeps the structure efficient for portfolios weighted towards equities.

Freezer shares are often drafted with a fixed or preferred dividend, giving founders a steady income from the capped value of the company. Growth shares can be drafted to carry a discretionary dividend right, so income can be flowed to younger shareholders in a controlled way. The dividend allowance for individuals is £500 for 2026/27, and dividend rates remain 8.75%, 33.75% and 39.35% across the basic, higher and additional rate bands, so distribution timing matters.

Structuring the Share Classes

The classic structure uses two classes of ordinary shares. A shares are the freezer shares, holding the existing value and usually carrying the voting rights and a preferred dividend. B shares are the growth shares, picking up everything above the hurdle and typically issued with limited or no votes. Some FICs add a C class for trusts or future grandchildren. The choice depends on what the family wants the company to look like in 10 or 20 years, not just at incorporation.

Valuing the Shares

Valuation is the part of the process that gets the most HMRC scrutiny. The company has to be valued at the date the new share classes are introduced, and the hurdle on the growth shares set with reference to that value. The growth shares themselves then need a defensible valuation in their own right, which is typically a small fraction of the underlying company value because they only participate in future growth above the hurdle. Getting a proper valuation report from a specialist at the outset saves expensive arguments later.

Updating the Articles of Association

The articles of association have to be rewritten to reflect the new share classes, the rights attached to each, the hurdle on the growth shares, and any drag along, tag along or pre emption provisions. This is normally combined with a shareholders’ agreement that deals with what happens on death, divorce or a family member wanting to exit. The articles are the public document filed at Companies House; the shareholders’ agreement is private and tends to do most of the heavy lifting on family governance.

Issuing Shares to Family Members

Once the structure is in place, founders subscribe for or convert into A shares, and B shares are issued or gifted to children, often at nominal value given their low initial worth. Where adult children are involved, direct ownership is usually fine. For minors or for added asset protection, the growth shares are often held through a family trust. Either way, the timing matters: issuing growth shares while company value is still close to the hurdle keeps the gift small and the seven year clock starts running sooner.

Legal and Governance Points

A FIC is a private company, so it follows the Companies Act 2006 and the directors have the usual statutory duties. The freezer and growth share structure adds another layer on top, because there are now competing economic interests within the company. Good governance is what stops that becoming a source of family disputes.

Shareholders’ Agreements

A shareholders’ agreement is not a legal requirement but, for a FIC of any size, it is close to essential. It sets out who can become a shareholder, what happens if a shareholder dies or divorces, how disputes are resolved, and who has the right to buy out a departing family member’s shares. This is often where parents build in protections such as restrictions on transferring shares outside the family, which is one of the main worries founders raise when setting up a FIC.

Voting Rights and Control

The flexibility of freezer and growth shares is largely about voting. Founders typically keep all or most of the voting rights through the freezer shares, while growth shares are issued with reduced or no votes. This lets parents transfer real economic value to the next generation without giving up the ability to set strategy, approve investments or change the dividend policy. As children become more involved, voting rights can be expanded gradually rather than handed over all at once.

A Worked Example

Consider a family company with a current value of £4 million. The founder, in their early sixties, holds all the shares and wants to pass future growth to two adult children while keeping income and control. The articles are rewritten to create A shares (freezer shares) with a fixed entitlement of £4 million and a preferred dividend, and B shares (growth shares) with a £4 million hurdle and reduced voting rights. The founder retains the A shares; the B shares are gifted to the children, valued at a low figure given the hurdle.

Over the next ten years the company grows to £8 million. The £4 million of growth has accrued to the B shares held by the children, which sat outside the founder’s estate from the day they were issued. The founder still receives a preferred dividend from the A shares and still controls strategic decisions. If the founder survives seven years from the original gift of the B shares, the gift drops out of the IHT calculation entirely.

Choosing Between Freezer and Growth Shares

In practice it is rarely an either or decision. The freezer shares are what give the founder retained value and control; the growth shares are what move future value to the next generation. The question is usually about proportions, timing and how aggressively to set the hurdle. Founders who need ongoing income lean towards freezer shares with a strong preferred dividend; founders focused on long term IHT planning lean towards getting the growth shares issued early so the seven year clock runs.

Conclusion

Freezer and growth shares remain one of the most practical ways for a UK family to pass long term wealth down the generations through a FIC. They are not a magic bullet, and they do not give the IHT relief that a trading company would, but they do let the founders separate today’s value from tomorrow’s growth in a way that fits the post April 2026 rules. With the BPR cap now in place, families with significant capital are looking harder at this structure, and the planning is most effective when it is done early, valued properly, and supported by clean articles and a sensible shareholders’ agreement.

Frequently Asked Questions

What are freezer shares and why do families use them?

Freezer shares fix the founder’s stake at today’s value of the FIC, with a preferential right to that capital on a sale or winding up. They let parents lock in their own position while another class of shares takes the future growth.

How do growth shares benefit the next generation?

Growth shares only participate in value above an agreed hurdle, which is usually set at the company’s current worth. Anything the company adds in value from that point on belongs to the growth shareholders, normally the children, so future appreciation builds up outside the founder’s estate.

Do FIC shares qualify for Business Property Relief?

No. A FIC is an investment company, and BPR is for trading businesses. The IHT planning advantage of freezer and growth shares in a FIC comes from moving future growth out of the founder’s estate through Potentially Exempt Transfers and the seven year rule, not from BPR.

What changed for inheritance tax in April 2026?

From 6 April 2026, 100% BPR and APR are capped at a combined £2.5 million per individual, transferable between spouses, with 50% relief above that. This does not directly affect FIC shares (which never qualified for BPR) but it has pushed many families to look at FICs as part of their wider planning.

How are freezer and growth shares typically structured?

Most FICs use A shares for the freezer (fixed value, voting, often a preferred dividend) and B shares for the growth (hurdle equal to current company value, limited or no voting). Setting it up involves a company valuation, redrafted articles of association, a shareholders’ agreement, and careful issuance or gifting of the growth shares to family members.

What governance points need to be in place?

A clear shareholders’ agreement, articles that reflect the rights attached to each share class, sensible voting arrangements, and a plan for what happens on death, divorce or a family member wanting to exit. These are the things that keep the structure working smoothly across generations.