A family business is more than work—it's a passion passed down, a shared dream, and a bond that grows stronger with each and every generation, each one seeking to pass the business on to the next generation in a better condition than the one they inherited.
In fact, family businesses are the engine room of the national economy, with around 5 million family firms employing around 14 million people. They can be found in all corners of the country and in virtually every sector of the economy, providing significant employment, creating wealth, generating income, paying taxes and supporting the communities in which they operate.
Family businesses, much like farming families, see themselves as custodians for future generations, innovating, investing and continuing to do what they do with a passion, determination and entrepreneurial spirit that transcends generations, making them part of the fabric of the communities where they are based. Their impact goes beyond the economic too as they give back in so many ways, raising funds for the local hospice, clearing rivers and beaches, sponsoring local sports teams and theatre groups and so much more besides.
Family firms also take a long-term view, often thinking in terms of generations and certainly not short-term financial returns or quarterly reporting to meet the demands of their shareholders. Continued evolution of the business, investment and good governance enables them to prosper through generations creating great British businesses that collectively make a difference too. Family generate significant revenues for the UK economy, amassing turnover in excess of £1.7 trillion and these businesses pay their way in taxes to the Exchequer too.
Investing and building sustainable businesses is good for the local, regional and national economy and the contribution of family businesses should not be underestimated.
In many cases, continued investment and long-term plans for growth means that these businesses are asset rich and cash poor, and the recent changes to Business Property Relief (‘BPR’) and Agricultural Property Relief (‘APR’) are causing serious concerns in a sector that is always looking forward.
The proposed changes, which seek to raise an estimated £500 million per year, may appear fiscally prudent on the surface but will ultimately cause irreparable harm to family businesses, farms and the UK economy as a whole.
Since being introduced by Labour’s Jim Callaghan in 1976, BPR has given family businesses the confidence and certainty to take the long-term view, to invest profits back into the business, employ more people, innovate and develop sustainable practices to improve productivity and growth, and at the same time enabling them to support the communities in which they operate.
BPR has allowed family businesses to grow and to stay within the family and this has in turn allowed them to confidently plan for the future in the knowledge that they can pass on the ownership of the business to the next generation without them facing significant tax charges upon each transition.
Without vast cash reserves or liquid assets at their disposal to cover an enormous inheritance tax bill, many will need to sell parts, or all the business, potentially to an overseas or corporate buyer who will not have the same interest in their long-term objectives, their purpose and passion for what they do, nor their people, their community, local jobs, or growth.
Rather than stimulate growth, the proposed changes are likely to have the opposite effect as family firms are forced to rethink plans, curtail investment and find ways to finance the inheritance on each transition, something that may ultimately result in businesses being sold, broken up or reducing in size in each subsequent generation.
As custodians of their businesses for future generations, family business owners are not seeking to transfer wealth on paper to subsequent generations but to pass on thriving businesses which can continue the legacy of generations that have gone before, secure in the knowledge that the business will continue with a purpose, continuing to grow and invest, provide job security and more employment opportunities and to continue to contribute significantly to the UK economy. Reinstating BPR would be a positive measure to provide family business owners with more certainty and clarity about the future too.
As Paul Andrews, Founder and CEO of Family Business United explains, “Family businesses instinctively want to do business the right way, planning for the long-term and in many cases, for generations to come."
"BPR provided that security to continue to do so, in the knowledge that they were building sustainable businesses for the future generations of us all, not just the family.”
Andrew Hinds, Chairman of F Hinds, the family-owned retail jeweller with 130 stores across Britain that was established in 1856 adds: “Family owners often extract less from their companies annually than those with external shareholders who demand higher returns. This leaves more funds for growth and to protect the business in tough times, both of which are good for the economy, but also means that family owners often have most of their assets in the business and don't have a big pot of cash sitting there ready to pay IHT.”
“This will force family business owners to behave in a way that is damaging both for their businesses and the wider economy as they will need to:
Reduce investment as they are forced to extract cash to set aside, or to bear additional costs such as Life Insurance, simply to cover IHT;
Pass on shares to children before they would have wanted to, with the risks that the children don’t inherit the necessary sense of responsibility and/or that the parents experience financial hardship as a result;
Sell the family business, often a multi-generational one, rather than risking being forced to do so at the wrong time in the event on an untimely death.”
“Family businesses have a record of being decent employers who care for their employees, suppliers, customers, local communities and wider society."
"They plan prudently within their means for the long term and are sources of knowledge and wisdom acquired over decades, as the average length of service in family businesses is far longer than in the corporate world. They are almost always domiciled in the UK and pay their fair share of taxes year after year.“
As Andrew concludes, “British family businesses are good businesses. Once they have been sold, they are changed forever and we lose a valued part of our economy and society. This is a tax on those who have the misfortune to die young. It’s accepted that it’s not wrong in principle to pass on a family business free of IHT, with members of the Government advising people to seek advice and make plans to avoid it, so why is it right for the government to behave penally in the most unfortunate circumstances of all?”
Michael Brundle, Managing Director of F. H. Brundle, the UK's leading stockists of metal and steel products, a family business established in 1889 adds: “These changes will have a devastating impact on the business. It means that on the death of the director, the IHT liability will be so large that the family will be forced to either sell the business, sell vital assets, or borrow huge sums of money to fund the tax liability.”
“Upon the announcement of this policy, we have stopped investment. In recent weeks we have had the opportunity to continue our expansion plans, but now have decided to not commit and wait to see what happens."
"Why would we want to build liabilities? If all businesses affected take this approach, the economy will decline very quickly.”
Steve Perez, Founder and Chairman of Global Brands Ltd & owner of Derbyshire's top 4 star independent Hotel, CASA and the Peak Edge Hotel shares Michael's thoughts. "Our family business is private, not corporate. This means we focus on long-term growth rather than short-term pay-outs for shareholders. It’s about building something sustainable for the future, not just the next quarter.”
“This change to BPR is a tax on business and, by extension, a tax on job security. Family businesses are often the backbone of their communities, supporting local charities and events. For instance, during COVID, our hotel opened its doors to the NHS, providing R&R for doctors and nurses and serving as a vaccine centre. Such contributions could be at risk if we’re forced to divert funds to cover new tax burdens or if we are bought out by the corporates," continues Steve.
“We’ve had to scale back investments to prepare for the inheritance tax that will hit when I pass away. Instead of reinvesting profits into growth and jobs, we’re building a nest egg to pay this tax. I’ve even had to take out life insurance, which is yet another cost that could have gone back into the business.”
"As a family business, we reinvest in our businesses, which means investing in jobs and growth. This is what drives local economies. Going forward it seems likely that Banks will hesitate to lend to family businesses knowing they could lose 20% of their value when the owner dies. Even younger business owners will be forced to take out life insurance policies, draining resources that could otherwise fuel growth and innovation," adds Steve.
Kate Nicholls OBE and CEO of UK Hospitality continues, "Like so many SMEs, a large number of hospitality businesses will be family businesses, passed down from generation to generation - particularly those in coastal and rural destinations. The existing tax regime has allowed them to do this, providing the stability to continuously invest in their people, their businesses and their future. But it also means that they can invest in the health of their communities - their local supply chain from farm to fork and the wider tourism ecosystem."
"A change in tax policy with little notice and no consultation coming on top of a £3.4 billion tax hike from changes to NIC threatens to undermine all of this."
Stephen Montgomery, Director of the Scottish Hospitality Group who count numerous family businesses amongst their members continues, "The new changes to BPR for our farming community will have devastating consequences to the families of these long standing businesses."
"It will of course have a wider impact on those who rely on farm produce. No more so than our hospitality businesses who have again been hit hardest after the UK budget, with the introduction of the higher NICs increases next year."
"Let us be very clear about this, in that any increases which our farming community need to pass on to suppliers, will always drop down the chain, which means the cost for hospitality businesses will again be hit. Hospitality businesses cannot just continually raise prices, as this makes it unaffordable for our consumers. Government must not continue to take the hospitality sector for granted," concludes Stephen.
As Paul Andrews concludes:
“As custodians or stewards of these businesses, family businesses are not looking to sell and realise the capital value of the business but looking to pass the business on to the next generation to continue the model of entrepreneurship. As such, BPR historically has been a way to stimulate growth, investment and future profits, which again feed into the local, regional and national economy."
"To that end, BPR should be seen as a driver of economic growth and an asset in retaining the significant contribution family firms make today, and hopefully will continue to do so for generations to come, rather than businesses now finding themselves in a situation where the benefits of BPR have been significantly removed which creates uncertainty, additional costs and the opposite to the growth agenda that the Government is seeking.”
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