In a major shift affecting family businesses, the Chancellor has announced that Business Property Relief (BPR) will be reduced to 50% from April 2026, leaving thousands of family businesses exposed to inheritance tax for the first time in decades.
Although previously exempt, business assets will now face an effective tax of 20% when passed on to the next generation, putting the financial stability of many companies at risk.
The policy change, aimed at generating £500 million annually by 2027, will end full inheritance tax relief for companies worth more than £1 million, with exceptions for smaller companies. The government’s spending watchdog, the Office for Budget Responsibility, expects the changes could encourage active tax planning among affected households, potentially resulting in lost tax revenues of £200 million to £300 million a year.
Family business advocates have criticized the move, with Neil Davy, CEO of Family Business UK, calling it a “betrayal of Britain’s hard-working family business owners”. He said BPR was essential to help family businesses compete with business models such as private equity, which are not subject to the same tax burden.
Steve Rigby, co-CEO of Rigby Group, described the tax shift as “poorly thought out” and warned that family members could be forced to sell their businesses to cover tax liabilities, especially if they need to raise cash through dividends, which face an effective tax reduction. tax rate of 38%.
The reduction in inheritance tax extends to investors in private companies, for whom the exemption will also be limited to 50%. Rachel Nutt, a partner at MHA, warns that families who own shares of private companies should reconsider their estate planning as they could face significant tax bills. “For a £30m business this could mean a £5.8m hit to inheritance tax,” she explained, underscoring the potential financial pressure on family businesses.
Chancellor Rachel Reeves defended the move, noting that only 0.3% of estates would be affected. However, the changes raise questions for family business owners, who may now have to reevaluate their succession and tax strategies to maintain business continuity across generations.