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Rachel Reeves’ move to limit inheritance tax relief on business property sounds a “death knell” for family businesses in the UK and undermines the government’s growth agenda, entrepreneurs and their advisers have warned.
Business relief has existed for decades in various forms and allows privately held companies and shares in Aim-listed groups to be passed between generations without inheritance tax being levied.
But in the Budget on Wednesday, the chancellor announced that business assets over £1mn will be charged inheritance tax at 20 per cent from April 2026 — below the standard 40 per cent rate. The first £1mn of business assets will be exempt from inheritance tax, as before.
Charlie Field, deputy chair of CPJ Field, a funeral director in southern England that has been in the same family for 10 generations, said the new limit would increase the challenges facing small and medium-sized enterprises at a time of higher employment costs.
The change “reverses over 50 years of successful support for family businesses, and sounds a death knell for this highly successful part of the UK economy”, he said.
Field noted that most family businesses would pay the inheritance tax charge by taking a special dividend from the company, which would incur a further 38 per cent tax charge, and mean the effective tax rate they paid was actually far higher than the 20 per cent proposed.
“It’s starting to look like quite an expensive luxury to pass the business on to the next generation rather than just sell it and realise the gains,” Field added, warning that families might explore moving offshore, breaking up a business or even selling it.
Gábor Futó, co-founder of real estate developer Futureal Group along with his father, said the changes to the relief regime were the “biggest bombshell” in the Budget and a “huge blow for entrepreneurship”. The move “goes directly against the government’s plans to encourage growth, risk-taking and investment,” he added.
Christopher Groves, a partner in the private client and tax team at law firm Withers in London, said the changes to business tax relief were “counterproductive” and a disincentive to building a business.
“How does it incentivise people to build a business when at any moment they could have the rug pulled from beneath their feet and have to come up with a 20 per cent levy on its overall assets?”
Family businesses account for 13.9mn jobs, or roughly half of all UK private sector employment, according to Family Business UK, a not-for-profit organisation representing family-owned enterprises.
On average 3,200 estates benefit from business relief each year, avoiding an average tax bill of £770,000 in each case, according to FBUK analysis of data from HM Revenue & Customs, the tax agency.
In the Budget Reeves also said inheritance tax would be levied at 20 per cent on agricultural estates over £1mn, part of wider changes that also brought pension pots within the scope of inheritance tax.
The Office for Budget Responsibility, the fiscal watchdog, estimates that Reeves’ changes to business property relief and agricultural property relief will generate £500mn by 2029-30, with another £1.5bn from inheritance tax on pension wealth. These formed part of an overall fiscal package containing £40bn of tax rises.
TV presenter Jeremy Clarkson, star of the Amazon Prime documentary Clarkson’s Farm, said in a post on X that farmers had been “shafted”.
The details of the changes are subject to consultation.
Steve Rigby, co-chief executive of Rigby Group, one of the UK’s biggest family-run companies and a director of Family Business UK, said the non-profit was lobbying “for further consultation or a reversal of their [the government’s] plans”.
The proposals “seem to be poorly conceived from a tax perspective and hugely damaging, especially to farmers, but certainly for the family business community”, he added.
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