Thirty two trade associations, representing more than 160,000 UK family-owned businesses and farms, have written to the Chancellor calling for a full and formal consultation on changes to inheritance tax announced in the budget.
In an open letter, led by Family Business UK, the trade associations warn that changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) will starve their members and the economy of investment, lead to forced, premature business sales and result in job losses right across the country.
Independent economic modelling commissioned by Family Business UK and conducted by CBI Economics suggests that far from raising revenue, the changes to BPR alone could result in a £1.25 billion net fiscal loss to the Exchequer, lead to more than 125,000 job losses and reduce economic activity (GVA) by £9.4 billion over the course of the parliament.
The leaders of 32 trade associations who have signed the letter represent family-owned businesses in all areas of the UK economy including builders, bakers, retailers, farmers, manufacturers, mechanics, food producers, funeral directors, pubs, restaurants, garden centres, growers, electricians and recruitment agents.
Neil Davy, CEO Family Business UK, said, “The model of family business ownership is unique. It powers the entire economy from farming to finance and everything in between. This letter, and those who have chosen to sign it, are testament to just how widespread family ownership is, and how committed we are to speak up on behalf of our members.
“The changes to inheritance tax for family businesses and farms are a hammer blow. In many cases, those inheriting the business will have no alternative but to sell up when the owner dies, rather than continue running the business.
“In these circumstances, there is a real risk that businesses, assets and farms will be sold to foreign-owned competitors or investors who will pay little to no tax in this country.
“Already, family business owners are taking decisions to withhold planned investments and are putting recruitment on hold. Those working for family businesses are also extremely concerned, worried about how these changes might impact them.
“We do not believe that these are the outcomes the government envisaged. So, we are calling on the Chancellor to meet and run a formal consultation, to find a solution that will protect the long-term interests of family businesses and farms and, crucially the jobs and investment they provide.”
From 6 April 2026, the full 100 per cent relief from inheritance tax will be restricted to the first £1m of combined agricultural and business property. Above this amount, landowners will pay inheritance tax at a reduced rate of 20 per cent, rather than the standard 40 per cent. This tax can be paid in instalments over 10 years interest free, and importantly the relief allowance is on top of the other spousal exemptions and nil-rate bands that people can access for inheritance tax too. This means that two people with farmland, depending on their circumstances, can pass on up to £3 million without paying any inheritance tax.
Family business owners and farmers typically retain more than 90 per cent of their personal wealth directly in the business, allocated to fund growth and investment.
Family Business UK is concerned that to cover the inheritance tax liability, business owners will be forced to take money out of the business otherwise allocated to investment, typically via dividends (taxed at up to 39.5%). Added to IHT, this effectively creates double taxation.
Figures from HMRC suggest that around 500 family farms and 500 family businesses a year would be affected by the change. Analysis by CBI Economics suggests that three times as many family businesses (1,647) will adjust their behaviour each year to mitigate the change to BPR.
According to the CBI Economics, family businesses mitigating the cost of a potential future inheritance tax bill would be most likely to reduce investment and employment leading to an:
- Average reduction in investment of 16.5 per cent
- Average reduction in headcount of 10.2 per cent
- Average loss of turnover of 7.4 per cent
Even for family businesses currently below the new threshold for BPR, there is a striking impact on how they behave and plan to mitigate future impacts from inheritance tax.
Amongst these businesses:
- 55 per cent expect investment to reduce with a quarter expecting it to fall by more than 20 per cent, producing an average net reduction of investment of 12.2 per cent
- Headcount would reduce by 9 per cent
- Turnover could fall by 5.8 per cent