Freezer Shares – an IHT planning structure for owners of Property CompaniesMake Text Bigger
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.
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.
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.
Landlord Tax Planning Consultancy is the core business activity of Property118 Limited (in association with Cotswold Barristers)Show Form To Book A Tax Planning Consultation
There will never be an optimal ‘one-size-fits-all’ business structure for tax purposes. The presentation below provides a useful overview of some of the options you might like to discuss with us.