The damage wrought by the Chancellor’s inheritance tax crackdown on family firms has been laid bare by fresh research that found over a third are on the brink of closure before the end of the parliament.
A poll of family business owners found nearly two thirds of the UK’s 4.8m family businesses are worried about their future prospects after a succession of wage and tax hikes left many scrambling to plug a hole in their balance sheet.
Some 84 per cent added that their firm’s outlook would be further hampered were Rachel Reeves to plough ahead with rumoured changes to VAT and personal taxes, like pension contributions and stamp duty.
Treasury ministers are reportedly considering bringing a glut of new products and services into the orbit of VAT – while simultaneously slashing the consumption tax on energy bills – in an attempt to plug the UK’s fiscal shortfall. It has also emerged that an overhaul of property taxation, including the introduction of a so-called ‘mansion tax’ and a rerating of council tax bands, is in officials’ sights.
Firms face threat of breaking up
Any fiscal consolidation at this month’s statement would follow Rachel Reeves’ controversial move to abolish Business Asset Disposal relief at her maiden Budget last year. Ending the decades-old carve out, which had allowed family business owners to pass down their firm free from inheritance tax, sparked a string of interventions from industry figures, warning beneficiaries would have to break up their firm in order to foot the tax bill.
According to the latest study from WSP Solicitors, the inheritance tax crackdown – along with other changes to payroll tax and minimum wage – left eight in 10 family firms less confident in the economy. The change has also led 14 per cent to abort plans to pass their business down to their offspring.
“The impact of last year’s Budget should come as no surprise, businesses of all shapes and sizes are having to make tough decisions around restructuring, staffing, investment and innovation, said Peter Mardon, the law firm’s commercial director. “It’s a tightrope they have been walking for a number of years against the backdrop of a stagnating economy and cost-of-living crisis.
Many are exploring options to sell
As well as a third facing closure before the end of the parliament, one in seven of the 2,000 family business respondents are exploring plans to sell up and 37 per cent said they are likely to move overseas.
Lucy Dunlop, owner of Bar Limon, a small Worcestershire-based business with 20 staff, said: “I was hopeful that a Labour government would bring in some progressive policies to incentivise and boost small independent businesses but with every budget, it feels like we’re being asked to do more with less.
“I was looking to open a second bar or restaurant, we even started scoping out premises however, this is all on hold as I do not wish to open myself up to greater risk.”