Business leaders have called on Chancellor John Healey to reverse his predecessor's inheritance tax changes affecting family firms ahead of his first Budget.
In a letter to Healey, organisations representing more than 200,000 companies described the decision to impose death duties on enterprises as "the most damaging measure yet for private and family-owned firms."
The groups warned that Rachel Reeves' changes to the sector are "undermining investment, jobs and the long-term future of some of Britain's most important companies," leaving them vulnerable to foreign takeovers.
What Reeves Announced
Reeves announced changes to business property relief and agricultural property relief in her 2024 Budget. The changes mean family firms and farms could face inheritance tax bills of 20 per cent on assets worth over £1million from April 2026.
The tax raid prompted a strong backlash, with farmers driving tractors through central London in protest and campaigners warning that more than 200,000 jobs were at risk.
Just before Christmas last year, Reeves reversed course, raising the threshold from £1million to £2.5million, or £5million for married couples. Farmers and businesses still face inheritance tax bills above that threshold, and Healey is now under pressure to scrap the policy entirely.
Business Leaders' Warning
Neil Davy, chief executive of Family Business UK, which organised the letter, said the Chancellor faces a choice in his first Budget between making it harder for British family businesses to invest, employ and pass their businesses on, or giving them confidence to build the economy.
Davy said family firms are employers, investors and anchors in communities across the country, and that taxing a business at the point of succession risks forcing owners into selling assets, cutting investment and jobs, or losing control of the business.
He said the government has already recognised the original policy needed softening, but thousands of ordinary businesses will still be caught by what he called the "death tax." He argued a family-owned business should not face a tax penalty simply for being built patiently and passed down through generations.
Davy added that the next Budget offers a chance to reset the relationship between government and family businesses, and that reversing the changes would signal that Britain wants businesses to stay, invest and grow there rather than become forced-sale targets for overseas buyers.
Sector-Wide Backing
The letter was also signed by UK Hospitality, the Country Land and Business Association and Build UK. The signatories said Reeves' changes have created a significant tax penalty for family ownership that does not apply in the same way to businesses owned by other structures or overseas investors.
They said the changes will create difficult choices for business-owning families, who may need to find cash to meet a tax bill, reduce investment or jobs, sell part of the business, or in some cases sell the entire company.
Family businesses make up over 90 per cent of firms in the UK and employ 57 per cent of the total workforce, according to the letter. Almost four in five are based outside London and the South East, which the signatories said underlines the sector's importance if Andy Burnham is to meet his pledge of creating "good growth in every postcode."
Calls From Rural and Regional Firms
Country Land and Business Association president Gavin Lane said the new Chancellor has a golden opportunity to reset the government's relationship with rural and family businesses by fully reversing the inheritance tax changes at his first Budget.
Lane said Healey should use the Budget to draw a line under the uncertainty that has gripped businesses for two years, which he said the increase in the threshold did little to alleviate. He said the association has continued to ask for a full reversal to send a clear signal that the government is backing businesses to invest and grow in long-term critical infrastructure.
Road Haulage Association managing director Richard Smith, who also signed the letter, said family-owned businesses are the backbone of the road transport industry and the communities it serves.
Smith said many members have invested over generations in their people, vehicles and local economies, often while operating on extremely tight margins, and that changes to inheritance tax reliefs risk diverting capital away from investment, recruitment and succession planning, potentially forcing viable businesses to be broken up or sold. He said the government should listen to the evidence, reconsider the changes and work with trade associations on a tax environment that supports long-term British ownership, investment and growth.
Housebuilding and Craft Sectors Also Warn
Builders Merchants Federation chief John Newcomb said the government has placed housebuilding at the centre of its growth plans, which requires a strong and stable building materials supply chain. He said this would be put at risk if companies manufacturing and supplying materials struggle to justify investment, adding that investment decisions are already being delayed among family-owned businesses in his membership.
Karen Dear, chief executive of the Craft Bakers Association, said family businesses are at the heart of the craft baking sector, often built over generations and deeply rooted in the communities they serve.
Dear said changes to inheritance tax reliefs risk penalising those businesses for their long-term commitment, making succession more difficult and potentially diverting investment away from jobs, skills and future growth. She urged the government to reconsider the changes and create a tax environment that supports rather than undermines the next generation of British family businesses.
