FBUK Publishes Economic & Fiscal impact of changes to BPR

125,700 Jobs and £9.4billion GVA Threatened by Inheritance Tax Change for Family Businesses.
Analysis Indicates £1.3billion Net Fiscal Loss to Government
Family Businesses Call on Government to Consult on the Changes

FBUK Publishes Economic & Fiscal impact of changes to BPR

Changes to the rules on Inheritance Tax for family-owned businesses could lead to a significant reduction in economic activity and lower tax revenues, as companies plan to cut investment and jobs according to new analysis.

Findings from an independent study by CBI Economics, the CBI’s economic consultancy division, on behalf of Family Business UK (FBUK) indicate that, over the term of this Parliament, the decision to cap Business Property Relief (BPR) at £1million could lead to more than 125,000 jobs losses (125,678) and reduce the value of goods and services produced across the economy (GVA) by £9.4billion.

Taken together, these reductions could mean that capping BPR at £1m could result in a net fiscal loss to the Exchequer of £1.3bn between 2026/27 and 2029/30. This is significantly lower than the £1.4bn gain in revenues estimated by the Office for Budget Responsibility (OBR) over the same period from the policy change to BPR alone.

The analysis by CBI Economics, part of which involved a survey of 234 family businesses, finds that over a fifth of family businesses (27%) with assets valued at over £1m expect to transfer the ownership of their business between 2026/27 and 2029/30 in a way that would incur Inheritance Tax. This is expected to lead to nearly 5,000 businesses making adjustments that have an impact on their activity.

To mitigate the additional tax liability the most common response from family business owners was to downsize, cut investment or reduce headcount.
The analysis indicates an:

  • average reduction in investment of 16.5%
  • average reduction in headcount of 10.2%
  • average loss of turnover of 7.4%

Fifteen percent (15%) of family businesses that expect to incur an Inheritance Tax liability say they will sell the business entirely, 9% say they will draw out extra cash from the business in the form of dividends (incurring additional tax at 39.5%), 6% would sell assets and shares to non-family investors and 4% would close, liquidate or relocate overseas.

The analysis shows that even for companies currently below the new £1million threshold for BPR, there is a striking impact on how they behave and plan to mitigate future impacts from Inheritance Tax.

Amongst these businesses:

  • 55% expect investment to reduce with a quarter expecting it to fall by more than 20%, producing an average net reduction of investment of 12.2%
  • headcount would reduce by 9%
  • turnover could fall by 5.8%

Neil Davy, CEO of Family Business UK said:
“Just as we’ve seen among the farming community in relation to APR, changes to BPR announced in the budget will fundamentally remove incentives among owners of family firms to invest in their businesses, and in many cases threaten their viability.

“The CBI Economics research concludes this will come at the expense of jobs, investment, and tax receipts into the Treasury. Downsizing of businesses, asset disposures, complete sale or liquidation are very real unintended consequences of this policy.

“Given a typical business will employ more people than an average farm, there’s a case to make that capping BPR may be even more damaging to the employment figures and the wider economy than capping APR.

“There’s a fundamental misconception that family business owners are hugely wealthy individuals, with large quantities of liquid assets or cash. Nothing could be further from the truth.

“As with farmers, owners of family businesses typically have more than 90% of their personal wealth directly tied-up in the business, allocated to fund growth and investment. To cover this tax liability, business owners will be forced to take money out of the business otherwise allocated to investment, typically via dividends (taxed at 39.5%). Added to IHT, this effectively creates double taxation.

“A common misconception is that BPR is a personal tax relief. In reality this is a tax on businesses, which no other model of business ownership is subject to.

“Government data, published alongside the Budget, forecasts that changes to Inheritance Tax on family business could raise £520m a year from BPR and APR, by the end of the Parliament. Based on data for 2021-22 the Government estimates that around 550 family businesses will be impacted by the change to BPR each year.

“FBUK believes that these figures significantly underestimate the impact of the change. The CBI Economics data support this, predicting the total number of businesses effected expected to change hands for 2026-2027 to be 1,647. Between 2026-27 and 2029-2030 is figure is 4,941, or 8.3% of all family businesses with assets valued at over £1m (59,814).

“Taking the Government’s own definition of SMEs, far from affecting a small number of those with the broadest shoulders, a cap of £1m will also affect many small and medium sized businesses who the Government are claiming to support. And without indexation, the £1m cap also means that more SMEs will fall within scope over time.”

William Lees-Jones, Managing Director of JW Lees said:

“The proposed changes will be a real blow to companies like JW Lees. It has always been our philosophy to invest our profits back into growing our family company resulting in significant investment and the creation of a large number of jobs.

“For us to have to divert funds into dividends to pay Inheritance Tax would be challenging and would inevitably reduce future investment in the company. It would also place our business at a considerable disadvantage to our competitors who tend to be listed or owned by private equity, sometimes overseas.

“We would urge the government to consult with businesses to look at all the potential unintended consequences of these proposed changes.”

Stuart Paver, Chair of Pavers Shoes added:

“Life was simple before the budget. I received shares from my parents, I held onto them and helped grow the business, reinvesting in the long-term growth of the company and then handed it on. But now I must spend time and money looking at how I can avoid leaving a huge burden to the next generation and the outcome is very unlikely to match the Chancellor’s desire for a growing economy.”

Lizzy Rudd, Chair of Berry Bros & Rudd said:
“We are a 326 year old family business, the oldest fine wine and spirits merchant in the UK and one of the oldest businesses in the UK.

“Throughout our long history we have always reinvested in the business rather than giving profit to shareholders. We pride ourselves in being a business that cares about our colleagues, our communities and our planet, and we follow the B Corp principles, having just applied for certification. This means we invest for the long-term for the benefit of all our stakeholders and have a reputation and heritage that is well known across the world”.

“Having Business Property Relief and being able to pass our shares down to the next generation without incurring Inheritance Tax has meant that we didn’t need to accumulate wealth outside the business, allowing us to continue to invest, providing employment and bringing people together from all over the world to the heart of London to share food, wine and conversation together.

“Inheritance Tax will threaten the future of the business and force us to think short-term to maximise returns to shareholders in order to build wealth outside the business to pay a future tax liability”

ENDS.

About Family Business UK (FBUK)
Family Business UK is the largest organisation dedicated to advocating for, promoting, and championing family businesses. It is movement of some of the most innovative, and best-known family businesses across the country, including a number of household names and global companies.

FBUK works to showcase the role and contribution family businesses make to communities across the country, and our wider economy.

FBUK is a not-for-profit organisation.

About CBI Economics
CBI Economics is the economic consultancy division of the CBI. We offer a suite of independent client services including bespoke economic analysis and business surveys. With unrivalled policy knowledge and business insights combined with economic expertise, we can develop a compelling narrative to help you achieve your desired outcomes – whether that be lobbying policy change, building a case for investment or demonstrating the impacts of your business on the economy, on society and on the environment.

CBI Economics conducted a survey following the changes to Business Property Relief (BPR) announced at the Budget. This survey attracted 234 responses from family businesses. The survey first determined the businesses that would be affected by the changes to BPR between April 2026, when the changes come into force, and April 2030. Affected businesses are those over £1 million in value and who are anticipating a share transfer or change of ownership in the period specified.

Businesses were asked how they expected the changes to affect their investment plans, turnover and headcount.

Primary survey data was integrated with additional secondary data collected from official and third-party sources. These informed the inputs to CBI Economics’ in-house economic and fiscal models, which were used to estimate the total economic impacts in Gross Value Added and Full Time Equivalent jobs, along with net fiscal impacts to the Exchequer. Total economic impact was derived primarily using the anticipated reductions in turnover, with CBIE’s dynamic economic model capturing the further implications this would have for supply chains and employee spending.

There is no growth agenda for Yorkshire without family businesses.

There is no growth agenda for Yorkshire without family businesses.

Thomas Martin, Chair Arco Ltd and the Yorkshire Regional Business Engagement Board

Right across Yorkshire, home-grown family businesses are wondering – what just happened? In 76 minutes, the Chancellor delivered a Budget that undermines hundreds of years of family business ownership in our region.

Yorkshire has a proud history of family businesses. The deep-seated values that we prize of hard work, responsibility, respect, community spirit run deep in businesses like mine, which has been trading in family ownership for 140 years.

Others like AW Hainsworth have been doing the same for 240 years, Bettys & Taylors 105 years, Howarth Timber 184 years. The list goes on.

But in the Budget the Chancellor put all this under threat by changing long-established policies that support us.

For the first time in almost 50 years, family businesses across Yorkshire will be subject to Inheritance Tax when the owner dies – something that is forcing many to wonder whether they will ever be able to pass on their business to their children. And whether their children will be able to afford to take them on?

Don’t get me wrong, I’m not arguing that family business owners shouldn’t pay their fair share of tax. We already do. Britain’s 4.8 million family businesses contribute more than £200 billion in tax every year – about a quarter of all taxes received by the Government.

But let’s be clear, for someone inheriting a family business, they are not taking on a prized Ming vase, family heirloom or nice house. It is the fabric of business. Family famers too are facing exactly the same threat. The tools of their business will also be taxed when they are passed to the next generation threatening food security and environmental management as assets are used to achieve maximum economic return.

The problem is that whilst Inheritance Tax is a tax on the individual, in the case of family businesses it becomes a direct cost to the company.

Take an average business valued at £8m, a family member inheriting it will now be expected to pay 20% tax on that (minus the first £1 million) to take it on when the owner dies. Not many people have that kind of money kicking around and so they will need to take a dividend from the company. That will be subject to additional tax rate of 39.5% meaning companies will be double taxed.

The cost will ultimately be paid through reduced investment, less growth, fewer jobs and more redundancies as companies divert money to cover a future tax liability. In worst case scenarios, neither the business or family member can pay the Inheritance Tax and will be forced to sell the business, or parts of it.

When you add on the massively increased burdens this Government is placing on business through increased employers National Insurance contributions, new employment legislation and minimum wage, the changes to Inheritance Tax are draining what little confidence we had left.

Business needs confidence. It imbues a sense of certainty that underpins the very nature of private enterprise, allowing companies of all sizes to take risks and invest in both their communities and people to generate long-term prosperity.

Home-grown family businesses do that better than most. We aren’t ‘here today gone tomorrow’ fly-by-nights. We take pride in what we do. It is our name above the door and we work hard to protect that whilst respecting our employees and the communities we serve.

The sheer bloody mindedness of Yorkshire folk has done them proud for generations. The fact there are so many long-established family businesses here in Yorkshire is testament to that. We are a proud county with a rich history.

But in a 76 minute Budget speech the Chancellor has unwound hundreds of years of patient planning and investment that will likely result in lower taxes, lower growth and lower employment.

I cannot believe this is what the Chancellor had in mind when she announced the closing of what she and others have called a “loophole.” As the Chairman of a long-established family business, and a director of Family Business UK, I am calling on the Government to consult with us to reverse this change and protect our proud heritage of family business.

END.

This article originally appeared in the Yorkshire Post on 14th November 2024.

Find out more about FBUK’s Back Family Businesses Campaign here.

Budget Comment – Inheritance Tax Changes – Family Businesses

Budget Comment – Inheritance Tax Changes – Family Businesses

Immediate Release.

Neil Davy, Chief Executive Officer of Family Business UK said: “These changes are a betrayal of Britain’s hard working family business owners and farmers that will result in valuable businesses being closed, sold and jobs lost across the country. 

“For all but the very smallest companies the changes to Business Property Relief are much the same as scrapping it entirely. Far from raising money for the Exchequer our research has shown that removing the reliefs will cost money – with a £29billion cut in economic activity and 391,000 jobs lost. 

“On top of changes to Employer’s National Insurance, employment rights, and living wage, this is yet another burden heaped on Britain’s 4.8 million family owned businesses, and removes entirely any incentive for starting or running a family business. 

“Inheritance tax reliefs are not loopholes, they are legitimate tax policies, introduced by a Labour Government in 1976, to ensure that businesses do not have to be broken up on the death of the owner, to the detriment of all the remaining employees, suppliers, customers, investors, the Treasury and wider economy. 

“These changes effectively seize 20% of the capital of private trading companies saddling them with tax bills that, in most circumstances, cannot be met without selling the underlying business.

“Those inheriting a family business simply do not have 20% of the business value lying around in cash. This change will see a steady succession of family business sold or their underlying assets broken up to satisfy these ill-thought out policy changes.” 

ENDS.

Contact the Family Business UK Press Office here.

Family Business UK response to Spring Budget 2024

Fiona Graham, Chief Advocacy Officer at Family Business UK responding to the Spring Budget said:

“With challenges facing them on multiple fronts, the family business community has been waiting on tenterhooks about what support the Chancellor would offer to help kickstart the economy.

“While there were incremental improvements on full expensing and VAT thresholds, sadly today’s announcement lacked the strong long-term vision for family firms to help them grow and provide more opportunities within the communities in which they operate.  With the recent  appointment of a new SME Council by the Government, we hope to see continued engagement with the family business community and more policies  for long term support in due course.

“On pensions the Chancellor mentioned moving ahead with the Mansion House Reforms.

“In the election year it’s essential that some of existing reforms around defined benefit pension scheme surplus sharing and consolidation keep moving ahead, and don’t come to a halt because of the election.”

Read the 2024 FBUK Budget submission

You can find the full Spring Budget, and accompanying documents, here.

Beyond the Headlines

There were updates to existing policies within the accompanying documents which will be of interest to many family firms, including:

  • Further details on six Investment Zones in Greater Manchester, Liverpool City Region, North East of England, South Yorkshire, West Midlands and Tees.  Find out more here.
  • Levelling up funding and UK Community Renewal Fund updates.  Find out more here.
  • The Government’s response to changes around Agricultural Property Relief (APR) where land is being put to environmental uses.  FBUK has engaged with HM Treasury and HMRC on this issue, and the need to update legislation to ensure family landowners are not penalised for tackling part in environmental schemes, as promoted by other parts of Government policy.  You can find the response to the consultation here
  • The Chancellor also announced the Government’s intention to regulate the provision of Environmental, Social and Governance (ESG) rating providers.  More information here.
  • HM Treasury and DLUHC published their response to a consultation on Business Rates Avoidance and Evasion

Summary of Announcements

Tax

  • 2p cut to employee National Insurance, from ten percent to eight percent.
  • Self-employed National Insurance will be cut from eight percent to six percent.
  • The non-domiciled tax status will be scrapped and replaced with a residency-based system from April 2025, raising £2.7bn in tax revenue a year by 2028/29.
  • Fuel duty 5p cut will be maintained for a further 12 months.
  • Alcohol duty freeze extended until 1 February 2025.  Abolish the furnished holiday lettings regime.
  • Abolish stamp duty relief on the purchase of multiple dwellings in one transaction.
  • Reduce the higher 28 percent rate of Capital Gains Tax on property to 24 percent.
  • Fuel duty 5p cut will be maintained for a further 12 months.  

Business

  • Planned legislation for full expensing to apply to leased assets.
  • From April 1, increasing the VAT registration threshold from £85,000 to £90,000.
  • £200m of funding to extend the Recovery Loan Scheme as it transitions to the Growth Guarantee Scheme.
  • New powers for The Pensions Regulator and the Financial Conduct Authority to ensure better value from defined contribution (DC) pension schemes.
  • Introducing new requirements for DC and local government pension funds to disclose publicly their level of international and UK equity investment.
  • Introduce the British ISA with an additional £5000 tax free allowance for investments in UK equity.
  • £270m for advanced manufacturing, to be spent on innovative automotive and aerospace R&D projects.
  • Up to £120m more will be allocated to the Green Industries Growth Accelerator to build supply chains for new technology such as offshore wind and carbon capture.
  • Extend the energy profit levy, the “Windfall Tax”, to 2029 to raise an additional £1.5bn.
  • Abolish the energy profit levy if the energy market price falls back to a historic norm for a sustained period.

END.