Thirty-two trade associations, representing more than 160,000 UK family-owned businesses and farms, have written to the Chancellor of the Exchequer Rachel Reeves calling for a full and formal consultation on changes to Inheritance Tax announced in the Budget.
In an open letter, led by Family Business UK, the Trade Associations warn that changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) will starve their members and the economy of investment, lead to forced, premature business sales and result in job losses right across the country.
Independent economic modelling commissioned by Family Business UK and conducted by CBI Economics suggests that far from raising revenue, the changes to BPR alone could result in a £1.25 billion net fiscal loss to the Exchequer, lead to more than 125,000 job losses and reduce economic activity (GVA) by £9.4 billion over the course of the Parliament.
Changes to BPR and APR announced in the Budget will also mean that business and farm assets worth more than £1 million will now be subject to Inheritance Tax at a rate of 20% when the business owner dies. Family business owners and farmers will typically retain more than 90% of their personal wealth directly in the business, allocated to fund growth and investment.
>>Read more about the BMF raising concerns over Inheritance Tax changes here.
To cover the Inheritance 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%).
Figures from HMRC suggest that around 500 family farms and 500 family businesses a year would be affected by the change. Analysis by CBI Economics suggests that three times as many family businesses (1,647) will adjust their behaviour each year to mitigate the change to BPR.
John Newcomb, CEO of the Builders Merchant Federation (BMF), is one of 32 signatories to the open letter, as well as five other construction bodies – British Coatings Federation, Construction Plant-Hire Association, Electrical Contractors Association, Home Builders Federation and Commercial Interiors UK.
The BMF further argued that the planned change to inheritance tax will have a profound impact on enterprise, and potential knock-on effect on the nation’s ability to build homes.
John said: “Construction is absolutely critical to the lifeblood of the UK economy, but we are hearing across the industry that the changes in inheritance taxation could limit the future of the sector, with many private and family businesses across our membership reporting back that the impact of Business Property Relief will damage enterprise.
“Most BMF members are now reviewing their sales and trading forecasts for the next two years and looking at investment decisions, stock levels and staffing numbers.
“Early indications are that the proposed changes to Business Property Relief pose significant concerns to family-owned businesses.
“We suspect owners may choose to defer or cut back on investing in or expanding their operations in the near term, in areas such as upgrading production lines, replacing plant and machinery, adding to product ranges, opening new branches, or taking on more staff, especially apprentices.
“This is a retrograde step for each company, and our supply chain, as it diverts money away from operational needs.”
Neil Davy, CEO of Family Business UK, said: “The model of family business ownership is unique. It powers the entire economy from farming to finance and everything in between. This letter, and those who have chosen to sign it, are testament to just how widespread family ownership is, and how committed we are to speak up on behalf of our members.
“The changes to Inheritance Tax for family businesses and farms are a hammer blow. In many cases, those inheriting the business will have no alternative but to sell up when the owner dies, rather than continue running the business.
“In these circumstances, there is a real risk that businesses, assets and farms will be sold to foreign-owned competitors or investors who will pay little to no tax in this country.
“Already, family business owners are taking decisions to withhold planned investments and are putting recruitment on hold. Those working for family businesses are also extremely concerned, worried about how these changes might impact them.
“We do not believe that these are the outcomes the government envisaged. So, we are calling on the Chancellor to meet and run a formal consultation, to find a solution that will protect the long-term interests of family businesses and farms and, crucially the jobs and investment they provide.”
