Family business owners across the UK have warned that major changes to inheritance tax rules are threatening long-term growth, forcing sales and diverting investment away from expansion, as new business relief restrictions come into force.
From 6 April, changes to business property relief, now known as business relief, will introduce a total of £2.5 million in value that can be transferred free of inheritance tax. Assets above that limit will be taxed at an effective rate of 20 per cent, with married couples able to combine allowances of up to £5 million.
These changes mark a major change from the previous regime, where qualified business assets could be transferred completely tax-free, and have caused widespread concern among entrepreneurs and advisers.
Industry figures say the short lead-up time to these changes has left many firms scrambling to rethink succession plans built decades ago.
Advisors working with family businesses report an increase in demand for tax planning services, as owners try to restructure holdings, consider partial sales or make succession decisions.
Matthew Ayres, managing director of the Bennie Group, a fourth-generation family business specializing in construction and equipment supply, said the time was “too short” to get used to.
“Family businesses spend their time internally doing tax planning instead of growing their businesses,” he said, describing these changes as “crazy”.
Research from Family Business UK suggests the impact will be far-reaching. Of the 559 family business owners surveyed, 57 percent said they expected to be affected by the changes, while nearly one in ten believed they would avoid any impact.
The organization estimates that there are 5.1 million family businesses in the UK, employing 15.8 million people and generating a turnover of £2.8 trillion, making this sector a cornerstone of the country's economy.
However, more than a quarter of firms surveyed believe they may not remain family-owned within the next decade, with tax changes identified as a key factor.
Business leaders warn that the changes could accelerate the sale of family firms, as owners seek to avoid future tax bills or ease succession difficulties.
Ayres said his company has seen an increase in buying opportunities, as some business owners choose to sell rather than pass their companies on to the next generation.
For some, the costs of transferring ownership under the new rules may outweigh the benefits of maintaining family control, which could lead to consolidation within industries and greater involvement of foreign investors.
The inheritance tax changes come at a time when companies are already facing rising costs in many areas, including increases in the national living wage, higher business rates and rising energy bills.
Ongoing regional tensions, particularly in the Middle East, also contribute to economic uncertainty, as high electricity prices feed into operating costs and inflation.
Together, these factors are creating what business leaders describe as a “perfect storm” of stress, reducing firms' ability to invest, hire and grow.
Family Business UK is calling for a full review and possible reversal of the changes, arguing they risk weakening an important part of the UK economy.
Chief executive Neil Davy said family firms play a unique role in supporting local communities and delivering long-term economic stability.
“They are focused on British cities and towns in a way that global companies cannot be,” he warned, warning that current policies could inadvertently favor foreign investors over established domestic businesses.
The organization is also promoting broader reforms, including changes to business standards, improved access to foreign capital and new incentives to support worker ownership and public investment.
The debate over inheritance tax reform highlights the wider tension between raising government revenue and supporting business continuity.
While the changes are intended to ensure a more balanced tax system, critics argue they could have unintended consequences for investment, employment and the structure of the UK economy.
As these new rules come into effect, the full impact may be felt within several years, influencing the way businesses plan for succession, capital allocation and long-term strategy.
For family companies, the immediate challenge is navigating a complex and expensive legacy environment. For policymakers, the question is whether the changes will deliver the intended benefits, or come at the cost of the UK's most important economic base.
