Freezer Shares and IHT planning for incorporated landlords

Freezer Shares and IHT planning for incorporated landlords

12:48 PM, 23rd November 2018, About 6 years ago

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Freezer shares provide an opportunity for owners of property companies to cap the value of the shares for IHT planning purposes by transferring future growth in value of the company outside their estate.

Chances are you expect the net value of your company’s rental properties to appreciate before you die?

This increase in net value will eventually be taxed at 40% by the Government in the form of Inheritance Tax. For example, if the properties in your Limited Company were to appreciate in value by say £5,000,000 by the time the shareholders pass away, the IHT liability on those shares could rise by as much as £2,000,000.

The solution we recommend to deal with this issue is an established structure known as creating “Freezer Shares” or “Growth Shares”. There is plenty of information available to read on the internet about Freezer Shares, but there is only one professional adviser we recommend to deal with the implementation of this strategy.

Mark Smith at Cotswold Barristers specialises in advising landlords. He is the Hon. Legal Counsel to Property118 and is highly experienced, qualified, regulated and insured to provide the necessary advice. He also charges a fixed fee, which in our opinion is far better than the ‘open cheque book’ approach to dealing with advisers who charge by the hour or a percentage of the estimated tax savings.

How do Freezer Shares work?

Ordinarily, shareholders in a company own A shares. These have:-

  • Voting rights
  • Dividend rights
  • All capital appreciation attributed

It is possible to create a new class of shares (B shares) which initially have a nominal value, because they have no voting rights, no capital value other than their face value of £1 each and no dividend rights.

The Freezer Shares strategy involves gifting these virtually worthless shares. Once the B shares have been transferred the company rules are changed so that future capital appreciation is attributed to the B shares. The outcome is that future capital growth accrues to the B shares, which are outside the estate of the A share shareholders.

Given that the B shares have no voting or dividend right they remain virtually worthless until such time as the company is either wound up or the A shares are transferred to the B shareholders. The latter would normally occur on death of the A share shareholders. Accordingly, there is little to any value in the B shares for creditors or divorcing partners whilst the shareholders of the A shares are alive and remain in full control of their company.

I consider the investment into this structure to be extremely sound planning. It’s not cheap (£10,000 + VAT fixed fee) but when you consider that every £1,000,000 of capital growth will eventually equate to £400,000 of IHT having to be paid at some point it is incredible value for money.

The only way I can see to lose out is if the A shareholders die before the value of the properties has increased, in which case the fees paid would be wasted.

I think this structure is likely to become increasingly popular for incorporated landlords.

Other IHT planning opportunities

If your company owes you money in the form of Directors or Shareholders loans it is possible to gift the benefit of those loans, as Potentially Exempt Transfers, to remove the IHT burden from your estate completely after seven years. The following is a snippet from the linked HMRC manual.

IHT planning consultations

The IHT planning strategies above are examples of what can be achieved, but there may well be many more options for you to consider.

In conjunction with both Cotswold Barristers and Insight Financial Associates, Property118 Limited provides the following services:-

  1. Initial fact finding via email and telephone
  2. A meeting with one of our professional advisers at your own home (UK only)
  3. Video conferencing with your professional advisers
  4. Written report and recommendations, including quotations for implementation
  5. Further video conferencing for Q&A purposes

The fixed fee for this service is £995 inclusive of VAT.

You could, of course, go directly to Mark Smith at Cotswold Barristers to implement the freezer shares strategy and to save yourself the £995 consultation fee. However, the downside to that is that you may then be oblivious to other IHT planning opportunities.

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