Freezer and Growth Shares – Succession Planning for a Family Investment Company (FIC)

Succession planning is a key concern for many families who wish to preserve and pass on wealth to the next generation. One increasingly popular method is through the use of a Family Investment Company (FIC) structured with ‘Freezer’ and ‘Growth’ shares. This approach can help maintain control, manage inheritance tax exposure, and pass on future value in a tax-efficient way.

Family Investment Company (FIC)

A Family Investment Company is a private limited company established to hold and manage assets/investments on behalf of a family. It is often set up by parents or family elders who wish to retain control of family assets while enabling younger family members to benefit from future growth. FICs offer a flexible structure for wealth preservation and succession and can be tailored through the use of different classes of shares to suit the family's goals.

Freezer Shares

Freezer Shares are typically issued to “lock in” the current value of assets for the existing shareholders. These are often structured as preference shares with a fixed entitlement to income or capital, allowing the original owners to retain value and, in some cases, voting control.

The main purpose of Freezer Shares is to ensure that any future increase in the company’s value accrues to a separate class of shares—usually held by the next generation. From an inheritance tax (IHT) perspective, this can be beneficial, as only the frozen value remains in the estate of the current shareholders, while future growth is excluded.

Growth Shares

Growth Shares are designed to participate only in the future increase in the company’s value.

If structured correctly, Growth Shares may have little or no value at the time of issue, minimising immediate tax liabilities. There may be no income tax on receipt and, in many cases, no immediate capital gains tax. However, professional valuation is essential, especially where growth is expected, as there may still be a modest capital gains tax charge depending on the structure and anticipated growth.

Growth Shares in FICs

When used in a FIC, growth shares allow future appreciation in value to be passed on to the next generation while the founders retain the pre-existing value and overall control. This approach is particularly relevant for investment companies, where business property relief is generally not available. While Freezer Shares can fix the current value of investments, Growth Shares carry some value because they reflect the potential for future investment performance, albeit discounted to present value.

Professional valuation is critical when issuing growth shares, as is legal advice to ensure the structure is commercially sound, and tax compliant.

Key Considerations

• Control: Freezer Shares can be designed to retain voting rights and income entitlements, allowing founders to maintain control over the company.

• Valuation: Independent valuation of the company’s current and projected future value is essential to avoid disputes and unexpected tax consequences.

• Tax Efficiency: If structured correctly, the use of Freezer Shares and Growth Shares can result in significant inheritance tax and capital gains tax savings over time.

• Legal and Tax Advice: Proper legal drafting and tax planning are vital.

  
  

Speak to an Expert

Restructuring a family investment company can be a powerful way to pass on wealth while maintaining control and ensuring tax efficiency. If this is an area you would like to explore please get in touch for a no-obligation initial consultation.

Authored: London Tax Team