Family business owners across the UK have warned that sweeping changes to inheritance tax rules could threaten long-term growth, force sales and divert investment from expansion as new restrictions on business relief come into force.
From April 6, reforms to business ownership relief, now known as business relief, will introduce a £2.5 million cap on the amount that can be passed on free of inheritance tax. Assets above this threshold are subject to an effective tax rate of 20 per cent, with married couples able to combine allowances of up to £5 million.
The changes represent a significant change from the previous regime, which allowed qualifying business assets to be transferred completely tax-free, and have caused great concern among business owners and advisors.
According to industry insiders, the relatively short lead time for the reforms has caused many companies to re-evaluate the succession plans they have built over decades.
Advisors working with family businesses report an increase in demand for tax planning services as owners look to restructure holdings, consider partial sales or advance succession decisions.
Matthew Ayres, managing director of Bennie Group, a fourth-generation family business in the construction and equipment industry, said the time frame was “far too short” to adapt.
“Family businesses spend their time internally doing tax planning instead of growing their business,” he said, calling the reforms “madness.”
Research from Family Business UK suggests the impact will be far-reaching. Of the 559 family business owners surveyed, 57 percent said they expect they will be significantly affected by the changes, while only about one in ten believe they will 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 the sector a cornerstone of the national economy.
However, more than a quarter of companies surveyed believe they may not remain family-owned within the next decade, citing tax changes as a key factor.
Business leaders warn that the reforms could accelerate the sale of family businesses as owners seek to avoid future tax liabilities or reduce the complexity of succession.
Ayres said his company has already seen an increase in acquisition opportunities as other business owners have chosen to sell their companies rather than pass them on to the next generation.
For some, the costs of transferring ownership under the new rules may outweigh the benefits of retaining family control, potentially leading to consolidation within industries and greater involvement from outside investors.
The inheritance tax changes come at a time when businesses are already facing rising costs on several fronts, including increases in the national living wage, higher business tax rates and rising energy bills.
Ongoing geopolitical tensions, particularly in the Middle East, are also contributing to economic uncertainty as higher energy prices impact operating costs and inflation.
Taken together, these factors are creating what business leaders call a “perfect storm” of pressures that are limiting companies’ ability to invest, hire and grow.
Family Business UK is calling for a full review and possible reversal of the reforms, arguing they risk weakening a key part of the UK economy.
CEO Neil Davy said family businesses play a unique role in supporting local communities and ensuring long-term economic stability.
“They are rooted in Britain’s cities in a way that global corporations can never be,” he said, warning that current policies could inadvertently favor outside investors over established domestic companies.
The organization also advocates for broader reforms, including changes to business rates, improved access to export finance and new incentives to support employee ownership and community investment.
The debate over inheritance tax reform highlights a broader tension between increasing 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.
Once the new rules come into effect, their full impact is expected to take place over several years, influencing how companies plan succession, allocate capital and pursue long-term strategy.
For family businesses, the immediate challenge is navigating a more complex and costly inheritance landscape. The question for policymakers is whether the reforms will deliver the intended benefits or come at the expense of one of Britain’s most important economic foundations.
