In a major shift affecting family-owned businesses, the Chancellor of the Exchequer has announced that the Business Property Relief (BPR) will be reduced to 50% from April 2026, exposing thousands of family businesses to inheritance tax for the first time in decades.
Although business assets were previously exempt, they will now be subject to an effective 20% tax when passed to the next generation, which would put the financial stability of many companies at risk.
The policy change, which aims to generate £500m a year by 2027, will end full inheritance tax relief for companies worth more than £1m, with exceptions for small businesses. The government’s spending watchdog, the Office for Budget Responsibility, predicts the changes could spur active tax planning among affected households, potentially leading to a loss of tax revenue of between £200 million and £300 million each year.
Family business advocates criticized the move, with Neil Davey, chief executive of Family Business UK, describing it as a “betrayal of Britain’s hard-working family business owners”. He argues that business restructuring has been essential in helping family businesses compete with corporate models such as private equity, which are not subject to the same tax burdens.
Steve Rigby, co-chief executive of Rigby Group, described the tax shift as “poorly planned”, warning that family members may have to sell their business to cover tax liabilities, especially if they need to raise cash through dividends, which faces effective pressures. The tax rate is 38%.
The reduction in inheritance tax relief extends to investors in private companies, who will also see a maximum tax relief of up to 50%. Families who own shares in a private company should rethink their estate planning, because they could face large tax bills, warns Rachel Knott, partner at MHA. “For a £30m company, this could mean an inheritance tax loss of £5.8m,” she explained, underscoring the potential financial pressure on family-owned businesses.
Councilor Rachel Reeves defended the move, noting that only 0.3% of properties would be affected. However, the changes raise questions for family business owners, who may now need to reevaluate succession and tax strategies to maintain business continuity across generations.