The UK economy relies on family-owned companies – but a new Business Property Relief threshold could force sales instead of succession, hit investment, job creation and tax receipts, and put business survival and economic growth at risk, says Claire Madden.
On 6 April 2026, new inheritance tax rules came into play, with major implications for family-run businesses. Changes to Business Property Relief mean that handing down business assets worth more than £2.5 million will now incur an effective inheritance tax (‘IHT’) rate of 20%. While the impact on farmers (who face similar changes to Agricultural Property Relief) has garnered most of the headlines, the effect on the UK’s business population has so far been largely overlooked.
But this is a move that should concern anyone interested in the strength of the British economy.
Family businesses in the UK make up the vast majority (93%) of private sector companies, employ 15.8 million people and contribute £985 billion to UK plc in Gross Added Value (GVA), according to data from the Family Business Research Foundation.1 Yet, even if they are asset-rich, they are often cash-poor.
Counting the cost: succession and survival
If owners can’t invest in their companies because they need to keep capital aside for the taxman, or if they decide it’s not worth the effort to invest to build value because their beneficiaries won’t reap the rewards, there will be a ripple effect on job creation, corporation, dividend and employment tax receipts, and overall growth. If they are forced to sell assets to pay hefty IHT bills, the business’ very survival could be at stake.
That’s a distressing prospect for entrepreneurs who have built up sizeable enterprises or have taken on the mantle of running companies passed down through generations, often putting their own capital at risk and working long hours, and who want to plan for succession, not sale.
And it’s alarming for the rest of us because, if ambition is quashed and business decisions are driven by the need to raise cash instead of by strategy, the consequences for economic stability could be severe.
Another hit to SME owners
Those running small and medium-sized enterprises (‘SMEs’) are already feeling bruised by recent changes to capital gains tax (‘CGT’) rates which have nearly doubled, alongside increases to employers’ national insurance (‘NI’) and the minimum wage. This latest IHT hike will only add to the sense that their success is not supported.
For many family-run business owners, anything that hampers their ability to pass down their legacy to the next generation will be a bitter pill to swallow. They will now need to think even more carefully about how to manage family business succession well in advance, considering issues such as how widespread the shareholder base is, how best to keep the firm in the family and what liquidity solutions (such as private equity investment) are available if necessary.
Targeting the "rich" could backfire
The rationale for this change is to tax the “rich” and prevent wealthy individuals from artificially sheltering IHT by buying up assets such as farmland, but it seems to have been brought in without fully appreciating how hard this will hit hard-working business owners and farmers. These are not fat cats; they’re ordinary families trying to make a decent living and contributing to the overall health of the economy in the process. If the government’s goal is growth, this is a strange way of showing it.
The Judicial Review, which concerns whether the new regime was introduced without sufficient consultation, was heard in March 2026 and judgment is still awaited. In the meantime, the changes have already come into force from 6 April 2026. Even if the challenge succeeds, uncertainty is likely to remain, and the Government may yet seek to preserve or reintroduce elements of the regime. Whatever the outcome, the incentive for entrepreneurialism and the perception of the UK as an enterprise-friendly environment have both taken a hard knock with this IHT raid. For an economy that relies so heavily on the dedication and commitment of family businesses, let us hope it is not a knock-out blow.
Sources
- Family Business Research Foundation - State of the Nation: UK Family Business Sector in 2023