Family-Run Businesses Face Financial Strain as IHT Changes Threaten Stability
Family-owned businesses and farms across the UK are hitting the brakes on investments and considering asset sales in response to Chancellor Rachel Reeves’ inheritance tax (IHT) reforms. The controversial changes, announced during the October Budget, have sparked backlash from business owners and farmers, who argue they will face significant financial strain.
A recent survey by Family Business UK and CBI Economics reveals that over 55% of family businesses have either canceled or postponed investments due to the reforms. The policy caps tax relief on business and agricultural properties at £1 million in assets—a move designed to close tax loopholes but now viewed as potentially damaging to the family business sector.
✅ Key Highlights
- 55% of family businesses have halted or canceled investments following the IHT reforms.
- 12% of business owners plan to sell their companies to cover the increased tax burden.
- Nearly a quarter of firms have paused recruitment or cut jobs since the Budget announcement.
- The reforms could result in 208,000 job losses and a net fiscal loss of £1.9 billion by the end of the current Parliament.
- Farmers claim they are being unfairly penalized, with half pausing investments due to the reforms.
The Inheritance Tax Reforms: What Has Changed?
The October Budget introduced strict caps on inheritance tax relief for business and agricultural properties, reducing the long-standing benefits for family-run enterprises.
- Previously, Business Property Relief (BPR) and Agricultural Property Relief (APR) allowed 100% tax exemption on qualifying business and farm assets passed down through inheritance.
- Under the new regulations, the tax relief is capped at £1 million in asset value.
- The move aims to prevent wealthy landowners from using property to dodge taxes.
However, the changes are hitting genuine family businesses and farms, forcing them to consider:
- Selling assets to cover the inheritance tax.
- Pausing investments due to future tax uncertainty.
- Cutting jobs to reduce costs.
Business Owners Sound the Alarm: “Tax Raid Will Cripple Family Businesses”
Lance Forman, owner of H Forman & Son, London’s oldest salmon smokehouse, criticized the reforms, calling them a “complete misunderstanding of how businesses are run.”
- Forman argues that taxing businesses upon the owner’s death penalizes companies that contribute to the economy.
- He warned that forcing family businesses to sell assets would hurt the job market and reduce tax revenue for the government.
“It’s much better to keep these businesses running so they employ people and pay taxes. Shutting them down through heavy inheritance taxes will cost the economy more in the long run.” – Lance Forman
Impact on Investment and Jobs
The inheritance tax reforms are already taking a toll on business confidence and investment activity.
- 55% of businesses surveyed by Family Business UK reported canceling or pausing planned investments.
- Nearly a quarter of businesses have either paused hiring or made job cuts in response to the Budget.
- A further 23% plan to cut jobs or halt recruitment before the tax changes take effect in 2026.
According to Family Business UK, the tax reforms could lead to:
- 208,000 job losses across family-run enterprises.
- A potential net fiscal loss of £1.9 billion by the end of the current Parliament.
Farmers Hit Hard by the Changes
The inheritance tax reforms are particularly damaging for farmers, who are often asset-rich but cash-poor.
- Farmers own valuable land assets but generate modest income, making it difficult to pay large inheritance tax bills.
- Nearly half of farmers surveyed said they had already canceled or delayed investments since the Budget.
The changes could lead to:
- Forced sales of family farms, further reducing the number of independent farms.
- Disruption in food production and rural economies.
Businesses Turn to Expensive Life Insurance Policies
To offset the financial impact of the inheritance tax changes, some business owners are exploring life insurance policies to cover potential liabilities.
- The survey found that 24% of business owners are considering purchasing a life insurance policy before 2026.
- This strategy aims to protect family businesses from liquidation by providing cash coverage to pay the tax bill.
However, critics argue that relying on life insurance is:
- Costly, especially for older business owners.
- Ineffective for large estates, where the insurance payout may not cover the entire tax bill.
Economic Consequences: Foreign Acquisitions on the Rise
The inheritance tax reforms are also raising concerns over foreign takeovers of UK companies.
- Mel Stride, the Shadow Chancellor, warned that reducing Business Property Relief (BPR) will:
- Make UK companies more attractive to foreign buyers.
- Lead to a surge in foreign acquisitions of British firms.
- Stride argued that the government has “lost sight of supporting entrepreneurs” by making it harder for family businesses to thrive.
✅ Potential Outcomes and Future Implications
- Increase in Business Sales:
- With 12% of business owners considering sales to cover the tax bill, the market could see a rise in distressed asset sales.
- This could lead to foreign acquisitions of UK-based companies.
- Job Losses and Economic Instability:
- The potential 208,000 job cuts could disrupt the UK labor market.
- Reduced business activity may result in lower tax revenue, creating a net fiscal loss of £1.9 billion.
- Shift to Alternative Tax Strategies:
- Some businesses may explore offshore tax strategies or legal loopholes to minimize their exposure to inheritance tax.
Conclusion: UK Family Businesses Face Tough Decisions Amid Tax Changes
Rachel Reeves’ inheritance tax reforms are creating significant challenges for family-run businesses and farms across the UK. With over 55% of firms halting investments and job cuts looming, the policy could stifle growth, reduce tax revenues, and lead to foreign acquisitions of British companies.
Farmers and business owners argue that the reforms unfairly penalize asset-rich but cash-poor enterprises, forcing them to sell or shut down. Meanwhile, companies are turning to life insurance policies as a stopgap measure, but this may not be a sustainable solution.
As the tax changes take effect, family businesses face tough decisions—from cutting jobs to considering sales—all while the UK economy risks losing billions in tax revenue.
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