More Than 160,000 Family Businesses Call on Government to Consult on Inheritance Tax Change.

More Than 160,000 Family Businesses Call on Government to Consult on Inheritance Tax Change.

Embargo: 00:00 Monday 16 December 2024

Thirty two Trade Associations, representing more than 160,000 UK family-owned businesses and farms, have written to the Chancellor calling for a full and formal consultation on changes to Inheritance Tax announced in the Budget.

In an open letter, led by Family Business UK, the Trade Associations warn that changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) will starve their members and the economy of investment, lead to forced, premature business sales and result in job losses right across the country.

Independent economic modelling commissioned by Family Business UK and conducted by CBI Economics suggests that far from raising revenue, the changes to BPR alone could result in a £1.25 Billion net fiscal loss to the Exchequer, lead to more than 125,000 job losses and reduce economic activity (GVA) by £9.4 Billion over the course of the Parliament.

The leaders of 32 Trade Associations* who have signed the letter represent family-owned businesses in all areas of the UK economy including builders, bakers, retailers, farmers, manufacturers, mechanics, food producers, funeral directors, pubs, restaurants, garden centres, growers, electricians and recruitment agents.

Neil Davy, CEO Family Business UK said: “The model of family business ownership is unique. It powers the entire economy from farming to finance and everything in between. This letter, and those who have chosen to sign it, are testament to just how widespread family ownership is, and how committed we are to speak up on behalf of our members.

“The changes to Inheritance Tax for family businesses and farms are a hammer blow. In many cases, those inheriting the business will have no alternative but to sell up when the owner dies, rather than continue running the business.

“In these circumstances, there is a real risk that businesses, assets and farms will be sold to foreign-owned competitors or investors who will pay little to no tax in this country.

“Already, family business owners are taking decisions to withhold planned investments and are putting recruitment on hold. Those working for family businesses are also extremely concerned, worried about how these changes might impact them.

“We do not believe that these are the outcomes the Government envisaged. So, we are calling on the Chancellor to meet and run a formal consultation, to find a solution that will protect the long-term interests of family businesses and farms and, crucially the jobs and investment they provide.”

Changes to BPR and APR announced in the Budget will mean that business and farm assets worth more than £1million will now be subject to Inheritance Tax at a rate of 20% when the business owner dies.

Family business owners and farmers will typically retain more than 90% of their personal wealth directly in the business, allocated to fund growth and investment.

To cover the Inheritance 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.

Figures from HMRC suggest that around 500 family farms and 500 family businesses a year would be affected by the change. Analysis by CBI Economics suggests that three times as many family businesses (1,647) will adjust their behaviour each year to mitigate the change to BPR.

According to the CBI Economics, family businesses mitigating the cost of a potential future Inheritance Tax bill would be most likely to reduce investment and employment leading to an:
average reduction in investment of 16.5%
• average reduction in headcount of 10.2%
• average loss of turnover of 7.4%

Even for family businesses 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%

There are 4.8 million family businesses in the UK employing almost 14 million people and contributing more than £200 Billion a year in tax revenues.

Download and Read the letter in full here.

END.

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.

Westminister debates family businesses and BPR

Westminister debates family businesses and BPR

Family businesses have taken centre stage in Parliament ahead of the Budget, with MPs debating Business Property Relief (BPR) and its essential role supporting family-owned firms across the country.

A Westminster Hall debate led by Harriet Cross, Conservative MP for Gordon and Buchan heard from MPs about how BPR and APR (Agricultural Property Relief) is being used to support businesses and family-owned farms in their constituencies.

The debate, which took place less than two weeks ahead of the Labour’s first budget, gave MPs a chance to raise their serious concerns with Government.

Opening the debate, Harriet Cross MP underlined the important role played by BPR and APR incentivising family businesses up and down the country.

 

Will Forster, Liberal Democrat MP for Woking, told Members about the importance of family businesses to local economies like Woking.

 

Nigel Huddlestone, the Shadow Financial Secretary, said the Government must hear the concerns and fears MPs had expressed on behalf of their constituents about potential changes to inheritance tax relief, including BPR.

Huddleston reminded the House that prior to the election, family businesses believed they had received assurances on BPR from the Labour party and called for those assurances to be reiterated.

Responding for the Government, James Murry, the Exchequer Secretary to the Treasury acknowledge that many Members had raised their uncertainties ahead of the budget, including on BPR.

He acknowledged the ongoing debate and the work of Family Business UK in calling for BPR to be retained.

The Budget will take place on 30 October.

You will be able to read Family Business UK’s response after the Chancellor has delivered the Budget to Parliament.

You can read FBUK’s pre-budget submission here.

Visit our Back Family Businesses campaign page here.

Confidence slips as businesses brace for “significant” tax rises  

Confidence slips as businesses brace for “significant” tax rises

Family-owned businesses fear changes could threaten their business

  • More than half (52%) of family businesses rate government’s policies unfavourable
  • Majority (80%) of family businesses say Labour wasn’t honest about tax plans

London: Eighty five per cent of business leaders say they expect the Government to increase business taxes in the Budget with 35% fearing significant tax rises according to research carried out by Censuswide.

Rises in Corporation Tax were identified most often by businesses, despite a pledge in Labour’s manifesto not to increase it.

Others include Business Rates, Capital Gains Tax and Employer’s National Insurance. More than a quarter (26%) of businesses say they feel less confident about the outlook for their business since Labour won the election.

The poll by Censuswide and commissioned by Family Business UK includes several different types of business ownership models, including PLCs, family businesses and private equity-backed firms. It reveals a marked difference in sentiment among Britain’s family business owners compared to other business models

52% of family-owned businesses polled rate the Government’s business policies as unfavourable and four out of five don’t believe the Labour Party was honest with voters about their plans for tax rises in the lead-up to the election.

There has been speculation about whether Labour could scrap Business Property Relief (BPR) in the Budget – a vital policy that underpins family businesses.

67% of family firms say the policy is either important or essential to their business and removing it from the budget could result in them selling assets (31%), being sold completely (20%) or liquidated (20%) to cover additional costs.

Neil Davy, Chief Executive Officer of Family Business UK said:
“The Chancellor used her speech a Labour Conference to repeat a pledge to not increase the rates of Income Tax, National Insurance or VAT. But a running commentary about the budget deficit and the need to increase other taxes, is extremely damaging for business.

“The Chancellor wants growth and Investment. Our members want that too. We hear that businesses are more confident because the Government has brought back stability. But that’s not what our research indicates – particularly for family businesses who are fearful the Government may be about to pull the rug from under them, removing tax policies that underpin their very model of ownership.”

The Need to Retain Business Property Relief

Ongoing uncertainty around whether the new Government will scrap or amend BPR means that family firms are extremely concerned. More than 70% say unfavourable policies will lead to lower profits and almost two thirds (63%) say they will not increase headcount in the next 12-months.

Family businesses are the beating heart of the economy, operating in every corner of the country. Britain’s 4.8 million family businesses support thriving local communities up and down the country, employing 13.9 million people and contributing more than £200 billion in taxes every year.

The model of family business ownership, which can see companies thrive for hundreds of years, is supported by a long-established policy known as Business Property Relief, or Business Relief (‘BPR’). The policy, first introduced in 1976 by the then Labour Government, has been retained by successive governments since and is widely recognised as providing a lifeline and level playing field for family firms to invest over the long term.

Each year, around 85,000 privately owned family businesses change hands when the owner dies or chooses to retire. BPR allows those businesses to continue trading, without interruption, when other family members take on the responsibility for running them. It means that neither they, nor the business is subject to additional taxes, or costs which, in most cases, are borne by the business. Non-family-owned businesses incur no tax penalty when ownership changes.

Neil Davy continues: “Our survey clearly shows the growing pressure family business are under due to uncertainty around potential tax rises and ongoing rumours about scrapping of Business Property Relief at the next election.

“While the Government allows this uncertainty to continue, Britain’s family business feel in limbo and important investment decisions are being put on hold.

“I would urge the Chancellor to ignore the voices of vocal minority who believe that BPR is a loophole for the wealthy, and would see it scrapped, and instead listen to us and our members about how it underpins an entire sector of the economy.

“Business Property Relief is not just a tax policy, it’s a commitment to fairness, opportunity, and the future of British enterprise. We would urge the Government to protect it or risk potentially catastrophic consequences of lost jobs, growth and prosperity in every constituency across the country.”

ENDS.

Notes to Editors

Censuswide conducted a poll of 500 business leaders and senior decision makers across the country between September 5 and September 9, 2024.

About Family Business UK

Family Business UK is the largest organisation dedicated to promoting, championing and advocating for family businesses. It is movement of more than 200 of the largest and best-known family businesses across the country, including a number of household names and global companies. It works to showcase the role family businesses play in creating a more prosperous and sustainable future and highlighting the impact of family-owned businesses.

FBUK is a not-for-profit organisation.

FBUK Autumn Budget Submission – Retain BPR

FBUK Autumn Budget Submission – Retain BPR 

Family Business UK (FBUK) has called on the Labour Government to commit to retain Business Property Relief in full and bring Gift Holdover Relief eligibility into alignment with BPR.

In a submission to Government, ahead of the Budget on 30th October, FBUK has repeated calls from our Manifesto and previous Budget submissions to ensure family businesses are not disadvantaged or penalised.

The submission states:

With strained public finances, the removal of BPR may appear an attractive option. Such a move would represent an existential threat to family businesses.

Ahead of the Budget, Family Business UK calls on the Government to:

  1. Commit to retain Business Property Relief in full
  2. Bring Gift Holdover Relief (GHR) eligibility into alignment with BPR to enable a smooth transition in ownership between generations

These reliefs are not just financial measures. They are policies that sustain the values of hard work, responsibility and opportunity – values that underpin our economy and way of life.

Removing or capping them would be catastrophic to family businesses, lead to the loss of good jobs, weaken the economy and leave Britain a poorer place.

The Family Business UK Budget submission is now available to view online. To download the full FBUK budget submission, please click here.

END.

 

FBUK warns of Threat to Family Businesses

FBUK warns of Threat to Family Businesses

Family Business UK (FBUK)  has warned how a vocal minority of commentators risk undermining Britain’s family businesses in the run up the Budget on 30 October.

In a letter to the editor of The Daily Telegraph, FBUK CEO Neil Davy, urges the Government to speak directly to family business owners to understand the importance of supportive policies and how businesses can deliver the Government’s growth agenda.

Below is the full text of the letter.

Ill-informed commentary puts jobs and growth at risk.

Sir, the Government was always going to face difficult choices on tax. But, it must be wary of making policy decisions that penalise businesses based on seemingly unfounded opinion (“Reeves told to charge capital gains tax after death.” 9 September).

Britain’s 4.8 million family-owned businesses are a case in point. Supported by policies that allow them to thrive across generations, they employ half the UKs private sector workforce and contribute more than a quarter of government tax receipts.

Family businesses are well placed to support the Government’s growth agenda. But a vocal minority would have the Government pull the rug from under them, risking a significant loss of jobs in every constituency across the country, lower tax receipts and threatens the future of otherwise successful businesses.

Contrary to the views of a minority of commentators, Business Relief, or Business Property Relief (BPR) is not a loophole that protects the wealthy. Nor is it a policy that benefits the privileged few. It is a policy that underpins the very model of family business ownership, and successful multi-generational businesses.

It has been retained by successive governments for 50 years for the simple reason they understood it gives family business owners the confidence to make long-term investments in their business and the communities they serve.

Many of Britain’s biggest and best-known brands are highly successful multi-generation family businesses. Those who run them have every right to be angry and alarmed by the IFS’ suggestion that future generations are not quite up to the task, or that the ultimate goal of all private businesses – including family businesses – is to sell and cash-in.

On behalf of all family businesses, I urge the Chancellor and her advisers to ignore these voices and speak directly to the owners of the family businesses whose future risks being threatened by ill-informed voices, about how they can – and want to – support delivery of the growth, jobs, and opportunity your government has promised.

Neil Davy
CEO, Family Business UK.