“Freezer Shares” For Landlord Inheritance Tax Reduction

Inheritance Tax (IHT) can be a significant concern for incorporated landlords, as the value of their properties can appreciate over time and be subject to high tax rates. The team at Property118 outlines a strategy known as “Freezer Shares” or “Growth Shares” that offers a solution to cap the value of shares for IHT planning purposes. They explain how Freezer Shares work and recommends a reputable adviser to implement this strategy.

Their article first highlights the potential IHT liability on the shares of a property company when the properties appreciate in value. For example, if the property value increases by £5,000,000, the IHT liability could be as high as £2,000,000 (40% tax rate). To mitigate this, the article suggests creating Freezer Shares, which involves the creation of a new class of shares (B shares).

These B shares initially have no voting rights, dividend rights, or capital value other than their face value of £1 each. The B shares are gifted and the company’s rules are changed so that future capital appreciation is attributed to the B shares instead of the existing A shares. This means that any future growth in the company’s value is outside the estate of the A share shareholders.

Since the B shares have little to no value until the A shares are transferred to the B shareholders or the company is wound up, they offer little value to creditors or divorcing partners. The A share shareholders retain full control of the company while they are alive.

The article emphasizes that this structure is considered sound planning and provides excellent value for money, despite the relatively high cost of implementing it (a fixed fee of £10,000 + VAT). Considering that each £1,000,000 of capital growth would eventually result in £400,000 of IHT to be paid, the cost of the structure becomes reasonable in comparison.

They say that the only way to lose out on this strategy is if the A shareholders die before the properties’ value increases, rendering the fees paid wasted. However, considering the potential for property value appreciation, the article predicts that this structure will become increasingly popular among incorporated landlords.

Freezer Shares offer a solution for property company owners concerned about potential IHT liabilities due to property value appreciation. By transferring future capital appreciation to a new class of shares, owners can cap the value of shares for IHT planning purposes. While there is a cost associated with implementing this structure, it provides excellent value for money considering the potential tax savings. Incorporated landlords are likely to find this strategy increasingly popular for effective tax planning.