125,700 Jobs and £9.4billion GVA Threatened by Inheritance Tax Change for Family Businesses.
Analysis Indicates £1.3billion Net Fiscal Loss to Government
Family Businesses Call on Government to Consult on the Changes
FBUK Publishes Economic & Fiscal impact of changes to BPR
Changes to the rules on Inheritance Tax for family-owned businesses could lead to a significant reduction in economic activity and lower tax revenues, as companies plan to cut investment and jobs according to new analysis.
Findings from an independent study by CBI Economics, the CBI’s economic consultancy division, on behalf of Family Business UK (FBUK) indicate that, over the term of this Parliament, the decision to cap Business Property Relief (BPR) at £1million could lead to more than 125,000 jobs losses (125,678) and reduce the value of goods and services produced across the economy (GVA) by £9.4billion.
Taken together, these reductions could mean that capping BPR at £1m could result in a net fiscal loss to the Exchequer of £1.3bn between 2026/27 and 2029/30. This is significantly lower than the £1.4bn gain in revenues estimated by the Office for Budget Responsibility (OBR) over the same period from the policy change to BPR alone.
The analysis by CBI Economics, part of which involved a survey of 234 family businesses, finds that over a fifth of family businesses (27%) with assets valued at over £1m expect to transfer the ownership of their business between 2026/27 and 2029/30 in a way that would incur Inheritance Tax. This is expected to lead to nearly 5,000 businesses making adjustments that have an impact on their activity.
To mitigate the additional tax liability the most common response from family business owners was to downsize, cut investment or reduce headcount.
The analysis indicates an:
- average reduction in investment of 16.5%
- average reduction in headcount of 10.2%
- average loss of turnover of 7.4%
Fifteen percent (15%) of family businesses that expect to incur an Inheritance Tax liability say they will sell the business entirely, 9% say they will draw out extra cash from the business in the form of dividends (incurring additional tax at 39.5%), 6% would sell assets and shares to non-family investors and 4% would close, liquidate or relocate overseas.
The analysis shows that even for companies currently below the new £1million threshold for BPR, there is a striking impact on how they behave and plan to mitigate future impacts from Inheritance Tax.
Amongst these businesses:
- 55% expect investment to reduce with a quarter expecting it to fall by more than 20%, producing an average net reduction of investment of 12.2%
- headcount would reduce by 9%
- turnover could fall by 5.8%
Neil Davy, CEO of Family Business UK said:
“Just as we’ve seen among the farming community in relation to APR, changes to BPR announced in the budget will fundamentally remove incentives among owners of family firms to invest in their businesses, and in many cases threaten their viability.
“The CBI Economics research concludes this will come at the expense of jobs, investment, and tax receipts into the Treasury. Downsizing of businesses, asset disposures, complete sale or liquidation are very real unintended consequences of this policy.
“Given a typical business will employ more people than an average farm, there’s a case to make that capping BPR may be even more damaging to the employment figures and the wider economy than capping APR.
“There’s a fundamental misconception that family business owners are hugely wealthy individuals, with large quantities of liquid assets or cash. Nothing could be further from the truth.
“As with farmers, owners of family businesses typically have more than 90% of their personal wealth directly tied-up in the business, allocated to fund growth and investment. To cover this tax liability, business owners will be forced to take money out of the business otherwise allocated to investment, typically via dividends (taxed at 39.5%). Added to IHT, this effectively creates double taxation.
“A common misconception is that BPR is a personal tax relief. In reality this is a tax on businesses, which no other model of business ownership is subject to.
“Government data, published alongside the Budget, forecasts that changes to Inheritance Tax on family business could raise £520m a year from BPR and APR, by the end of the Parliament. Based on data for 2021-22 the Government estimates that around 550 family businesses will be impacted by the change to BPR each year.
“FBUK believes that these figures significantly underestimate the impact of the change. The CBI Economics data support this, predicting the total number of businesses effected expected to change hands for 2026-2027 to be 1,647. Between 2026-27 and 2029-2030 is figure is 4,941, or 8.3% of all family businesses with assets valued at over £1m (59,814).
“Taking the Government’s own definition of SMEs, far from affecting a small number of those with the broadest shoulders, a cap of £1m will also affect many small and medium sized businesses who the Government are claiming to support. And without indexation, the £1m cap also means that more SMEs will fall within scope over time.”
William Lees-Jones, Managing Director of JW Lees said:
“The proposed changes will be a real blow to companies like JW Lees. It has always been our philosophy to invest our profits back into growing our family company resulting in significant investment and the creation of a large number of jobs.
“For us to have to divert funds into dividends to pay Inheritance Tax would be challenging and would inevitably reduce future investment in the company. It would also place our business at a considerable disadvantage to our competitors who tend to be listed or owned by private equity, sometimes overseas.
“We would urge the government to consult with businesses to look at all the potential unintended consequences of these proposed changes.”
Stuart Paver, Chair of Pavers Shoes added:
“Life was simple before the budget. I received shares from my parents, I held onto them and helped grow the business, reinvesting in the long-term growth of the company and then handed it on. But now I must spend time and money looking at how I can avoid leaving a huge burden to the next generation and the outcome is very unlikely to match the Chancellor’s desire for a growing economy.”
Lizzy Rudd, Chair of Berry Bros & Rudd said:
“We are a 326 year old family business, the oldest fine wine and spirits merchant in the UK and one of the oldest businesses in the UK.
“Throughout our long history we have always reinvested in the business rather than giving profit to shareholders. We pride ourselves in being a business that cares about our colleagues, our communities and our planet, and we follow the B Corp principles, having just applied for certification. This means we invest for the long-term for the benefit of all our stakeholders and have a reputation and heritage that is well known across the world”.
“Having Business Property Relief and being able to pass our shares down to the next generation without incurring Inheritance Tax has meant that we didn’t need to accumulate wealth outside the business, allowing us to continue to invest, providing employment and bringing people together from all over the world to the heart of London to share food, wine and conversation together.
“Inheritance Tax will threaten the future of the business and force us to think short-term to maximise returns to shareholders in order to build wealth outside the business to pay a future tax liability”
ENDS.
About Family Business UK (FBUK)
Family Business UK is the largest organisation dedicated to advocating for, promoting, and championing family businesses. It is movement of some of the most innovative, and best-known family businesses across the country, including a number of household names and global companies.
FBUK works to showcase the role and contribution family businesses make to communities across the country, and our wider economy.
FBUK is a not-for-profit organisation.
About CBI Economics
CBI Economics is the economic consultancy division of the CBI. We offer a suite of independent client services including bespoke economic analysis and business surveys. With unrivalled policy knowledge and business insights combined with economic expertise, we can develop a compelling narrative to help you achieve your desired outcomes – whether that be lobbying policy change, building a case for investment or demonstrating the impacts of your business on the economy, on society and on the environment.
CBI Economics conducted a survey following the changes to Business Property Relief (BPR) announced at the Budget. This survey attracted 234 responses from family businesses. The survey first determined the businesses that would be affected by the changes to BPR between April 2026, when the changes come into force, and April 2030. Affected businesses are those over £1 million in value and who are anticipating a share transfer or change of ownership in the period specified.
Businesses were asked how they expected the changes to affect their investment plans, turnover and headcount.
Primary survey data was integrated with additional secondary data collected from official and third-party sources. These informed the inputs to CBI Economics’ in-house economic and fiscal models, which were used to estimate the total economic impacts in Gross Value Added and Full Time Equivalent jobs, along with net fiscal impacts to the Exchequer. Total economic impact was derived primarily using the anticipated reductions in turnover, with CBIE’s dynamic economic model capturing the further implications this would have for supply chains and employee spending.
