Reeves’ corporate inheritance tax shake-up ‘will cost the exchequer £1bn more than it suggests’ economists warn
Chancellor Rachel Reeves’ overhaul of inheritance tax on family businesses and agricultural land is at risk of leaving the Exchequer £1bn worse off than if no changes were made, according to new economic analysis.
The CBI Economics report suggests that the predicted decline in investment—caused by strong relief on inherited business assets—could outweigh any additional inheritance tax revenue collected. The study warns that Britain could lose £2.6bn in revenue from other taxes such as business tax, income tax, and national insurance over the next five years, largely overshadowing an estimated £1.38bn gain from the inheritance tax changes.
The findings indicate that the Department of Finance has “underestimated the impact” of the changes to the business premises benefit (BPR). Analysts expect more than half of family businesses to cut back on investment after the policy change, and further economic damage is predicted to include the loss of 125,678 jobs.
Together, these measures are expected to reduce economic activity, eroding the tax base more than previously thought. Instead of improving public finances, the analysis says the changes could cost the government £1.26bn more than maintaining the status quo.
Kemi Badenoch, leader of the Conservative Party, is expected to express these concerns in her speech at the Business Property Relief Summit in London on Monday. He will argue that Labour’s approach leaves “no one safe” from tax hikes, accusing the government of stifling investment and destroying growth.
Speaking to those attending the event at the London Palladium, Ms Badenoch is expected to say: “Keir Starmer and Rachel Reeves have spent years telling businesses not to be afraid. Within weeks of taking over, they launched the worst attack on family businesses in living memory. They promised to grow, but instead they set it back.”
He will add: “The warning from Family Business UK, that Labour’s changes to the BPR could cost 125,000 jobs, is heartbreaking – the equivalent of all the people of Blackburn.”
Under the proposed changes, inherited business assets of more than £1m will be subject to 20% tax. Agricultural property relief (APR) will also be strengthened, meaning farmers face new tax burdens on inherited farmland.
Nigel Farage, leader of the Reform Party, said: “Rachel Reeves is not an economist. His Budget measures and complete lack of understanding of the private sector are dragging the country into recession.”
Tim Farron, Liberal Democrat environmental spokesman, added: “Farmers have put up with stalled trade deals and endless red tape. Now this tax increase from the Chancellor threatens the survival of many family farms and jobs.”
The moves come amid widespread fears that the Chancellor’s record £40bn budget tax raid is already denting Britain’s economic prospects. GDP figures for October showed an unexpected decline for the second month in a row, and rising unemployment data—due to be published on Tuesday—could confirm a rate cut.
James Reed, the chief executive of the recruitment company, Reed, has warned that the decline in job vacancies may reflect the economic downturn. He told the BBC on Sunday on the Laura Kuenssberg show that vacancies on his site had fallen by 26% year-on-year, describing the trend as a sign of tough times ahead.
Later this week, Labor leader Sir Keir Starmer will face scrutiny from senior MPs on the Liaison Committee, where questions about inheritance tax reforms are likely to loom large.
Meanwhile, farmers are expected to join Ms Badenoch at Monday’s conference to voice their opposition. Industry groups have accused the government of downplaying the impact of its reforms. The Central Association of Agricultural Valuers estimates that 2,500 farmers will be affected every year—five times what the Treasury says—while National Farmers’ Union (NFU) president Tom Bradshaw has expressed concern about the huge pressure the policy is putting on older landowners.
On Monday, 160,000 family businesses—represented by trade bodies including the NFU, the British Independent Retailers Association, and Hospitality UK—will write to Ms Reeves. They will seek formal consultation and insist that BPR and APR are never loopholes but legitimate incentives designed to encourage investment.
CBI Economics surveyed family-owned companies and concluded that 85% plan to reduce investment due to the changes, while 54% expect to reduce staff. By 2030, the group predicts a £9.4bn drop in gross value added (GVA), a key measure of economic output.
Neil Davy, chief executive of Family Business UK, said: “Owners are already withdrawing from planned investment and halting employment. We do not believe that these results were what the government intended. We urge the Council to consult formally and find a solution that protects long-term investment, jobs and growth.”
The growing backlash over the tax hike has fueled speculation that the government may soften its stance. Arun Advani of CenTax, an early supporter of the proposals, suggested raising the thresholds to protect family farms.
A spokesman for the Ministry of Finance defended the policy: “Our commitment to the business is strong. With a 25% business tax cap and a permanent full charge, we aim to unlock growth in Britain. But with a £22bn funding hole inherited and public services under strain, tough decisions had to be made. We have published our impact model and will provide further analysis in line with the draft legislation expected in 2025. “
