Family businesses face new burden of inheritance tax as relief reduced to 50%
In a major change affecting family-run businesses, the Chancellor has announced that Business Property Relief (BPR) will be reduced to 50% from April 2026, exposing thousands of family firms to inheritance tax for the first time in decades.
Although previously exempt, corporate assets will now attract an effective 20% tax when passed on to the next generation, which has threatened the financial stability of many firms.
The policy change, which aims to generate £500 million a year by 2027, will end the full exemption from inheritance tax for businesses worth more than £1 million, except for small firms. The government’s spending body, the Office for Budget Responsibility, expects the changes to encourage more efficient tax planning among affected households, which could result in a loss of £200 million to £300 million in tax revenue each year.
Family business advocates have slammed the move, with Neil Davy, chief executive of Family Business UK, calling it “a betrayal of Britain’s hard-working family business owners.” He argues that BPR has been important in helping family businesses compete with corporate models such as private equity, which are not subject to the same tax burdens.
Steve Rigby, CEO of the Rigby Group, described the tax changes as “ill-conceived,” warning that family members may be forced to sell their businesses to pay tax bills, especially if they need to raise cash through dividends, which face success. tax rate of 38%.
The reduction in inheritance tax also extends to investors in private companies, who will also see their exemption up to 50%. Rachel Nutt, a partner at MHA, warns that families with private company shares should rethink estate planning, as they could face huge tax liabilities. “For a £30 million business, this would mean a reduction in inheritance tax of £5.8 million,” he explained, stressing the potential financial difficulties for family firms.
Chancellor Rachel Reeves defended the move, saying only 0.3% of estates would be affected. However, the changes raise questions for family business owners, who may now need to re-evaluate their succession and tax strategies to maintain the continuity of the business from generation to generation.
