If you own a property company, there's a good chance all your shares are the same type. You set up the company, issued some ordinary shares, and that was that. Job done.
But here's something worth knowing: your company doesn't have to have just one type of share. In fact, creating different classes of shares is one of the most powerful tools available for inheritance tax planning. And yet most property company owners have never heard of it.
So let's break it down. No jargon. No corporate law textbook. Just the bits that actually matter if you're thinking about protecting your family's wealth.
What are ordinary shares?
When most people set up a limited company, they issue ordinary shares. These are the default. Every share is identical — same voting rights, same entitlement to dividends, same share of the company's value if it's wound up.
If you own 100% of the ordinary shares, you own 100% of everything: the decisions, the income, and the value. Simple enough.
But simplicity has a downside. If all your shares are the same, you can't easily give different rights to different people. You can't, for example, pass income to your children without also giving them control of the company. And you can't separate today's value from future growth.
That's where different share classes come in.
Alphabet shares — A shares, B shares, C shares
The term "alphabet shares" is just a nickname. It refers to the practice of creating multiple classes of shares, each labelled with a letter — A shares, B shares, C shares, and so on.
Each class can carry different rights. For example:
- A shares might carry full voting rights and the right to receive dividends
- B shares might carry dividend rights but no votes
- C shares might carry voting rights but no dividend entitlement
The beauty of this is flexibility. You can tailor each class to suit a specific person's role in the family and the business. The parent who founded the company might hold shares with voting control. Adult children might hold shares that entitle them to dividends but don't give them the power to sell the properties or change the company's direction.
The rights attached to each class are defined in the company's articles of association — the legal rulebook that governs how the company operates. Changing the share structure means updating the articles, which needs to be done properly with legal input.
Growth shares
Growth shares are designed to capture only the future increase in the company's value, not the value that already exists.
Here's why that matters. Say your property company is worth £1.2 million today. If you give ordinary shares to your children, you're transferring £1.2 million of value — which creates an immediate inheritance tax consideration.
But if you issue growth shares to your children instead, those shares are only entitled to the value above, say, £1.2 million. On the day they're issued, they're worth very little (sometimes just pennies). Over time, as the company grows, the growth shares increase in value — but that growth belongs to your children, not your estate.
Why this matters for IHT: Growth shares allow you to freeze the value in your estate at today's level while directing all future growth to the next generation. The sooner you do it, the more value sits outside your estate.
Deferred shares
Deferred shares sit at the back of the queue. They only receive value after all other share classes have been paid. In many structures, they're designed to have minimal or no economic value.
Why would anyone want shares worth nothing? Because deferred shares can be used strategically. For example, a parent might convert their ordinary shares into deferred shares as part of a restructuring, effectively moving value out of their hands while retaining a nominal connection to the company.
They're also useful as a safety mechanism — a way to ensure that value flows to the right people in the right order.
Preference shares
Preference shares give the holder a fixed entitlement — usually a set dividend — ahead of ordinary shareholders. Think of them like a guaranteed slice of the pie before anyone else gets served.
In a family property company, preference shares can be used to provide the founders with a predictable income stream while the ordinary (or growth) shares — and the upside — sit with the next generation.
Preference shares can also carry a fixed capital value, which means their worth doesn't fluctuate with the company's performance. That predictability can be useful when you're trying to manage the value of an estate.
Why share classes matter for IHT planning
Here's the bit that ties it all together.
If you own 100% of ordinary shares in a property company worth £2 million, then £2 million sits in your estate. At 40% IHT above your nil rate band, that's a significant tax bill for your family.
But if you restructure those shares — creating different classes with different rights — you can start to move value to your children in a controlled, tax-efficient way. You keep the control and income you need today, while directing future growth (and eventually current value) to the next generation.
The key point is that you don't have to give everything away at once. Share classes let you be precise about who gets what.
Rachel owns 100% of a property company worth £1.5 million. She has two adult children, Sophie and Daniel. Rachel wants to start reducing her IHT exposure but isn't ready to hand over control of the company.
Working with her adviser, Rachel restructures the company's shares:
- A shares (Rachel): Full voting rights, entitled to a fixed annual dividend, but with a capped capital value equal to today's company valuation
- B shares (Sophie): No voting rights, entitled to discretionary dividends, plus all growth in value above the current £1.5m
- C shares (Daniel): Same rights as B shares
On the day of restructuring, Sophie and Daniel's shares are worth very little — they only capture future growth. But over the next 10 years, as the property portfolio appreciates, their shares grow in value outside Rachel's estate.
Rachel keeps control, keeps her income, and her estate stays frozen at roughly £1.5 million rather than growing to £2 million or more.
A few important caveats
Share restructuring isn't something you do on a Sunday afternoon. There are several things to get right:
- Valuation: HMRC will want to know the company was properly valued at the time of the restructuring. Get it wrong and you could face unexpected tax charges.
- Articles of association: The rights of each share class must be clearly defined in the company's articles. Vague wording can cause problems years down the line.
- Tax implications: Depending on how the restructuring is done, there can be capital gains tax, income tax, or stamp duty considerations. The structure needs to be planned carefully.
- Family dynamics: Giving shares to children is a long-term decision. It's worth thinking carefully about whether each family member is ready — and what safeguards you need.
The right combination of share classes depends entirely on your circumstances — your company's value, your income needs, your family situation, and your timeline. There's no one-size-fits-all answer, which is exactly why this is worth discussing with someone who specialises in it.
The bottom line
Most property company owners don't realise they have options beyond ordinary shares. But creating different share classes is one of the most flexible and effective ways to start reducing your inheritance tax exposure — without giving up the control or income you rely on today.
It's not about clever tricks. It's about structuring things properly so that more of your wealth goes to your family, and less goes to the taxman.
Wondering whether a share restructure could work for you?
Every property company is different. We can look at your specific situation and talk through the options — no obligation, no jargon, just a straightforward conversation.
Book a free consultation