In a major shift affecting family-owned businesses, the Chancellor has announced that Business Property Relief (BPR) will be reduced to 50% from April 2026, exposing thousands of family firms to inheritance tax for the first time in decades.
While previously exempt, business assets will now incur an effective 20% tax when passed to the next generation, jeopardising the financial stability of many firms.
The policy change, aimed at generating £500 million annually by 2027, will end full inheritance tax relief for businesses valued over £1 million, with exceptions for smaller firms. The government’s spending watchdog, the Office for Budget Responsibility, anticipates the changes could spur active tax planning among affected families, potentially resulting in lost tax revenue of £200 million to £300 million each year.
Family business advocates have criticised the move, with Neil Davy, CEO of Family Business UK, calling it a “betrayal of Britain’s hard-working family business owners.” He argues that BPR was essential in helping family businesses compete with corporate models like private equity, which are not subject to the same tax burdens.
Steve Rigby, co-CEO of Rigby Group, described the tax shift as “poorly conceived,” warning that family members may be forced to sell their businesses to cover tax liabilities, especially if they need to raise cash through dividends, which face an effective tax rate of 38%.
The inheritance tax relief reduction extends to investors in private companies, who will also see their relief capped at 50%. Rachel Nutt, a partner at MHA, warns that families holding private company shares must rethink their estate planning, as they could face significant tax bills. “For a £30 million business, this could mean a £5.8 million inheritance tax hit,” she explained, underscoring the potential financial strain on family-owned firms.
Chancellor Rachel Reeves defended the move, noting that only 0.3% of estates would be impacted. However, the changes raise questions for family business owners, who may now need to re-evaluate their succession and tax strategies to preserve business continuity across generations.