Changes to how inheritance tax and trusts are treated for non-doms have already put the nation’s finances on shakier ground – something I revealed in a cover story last month. Now, a new report suggests these anti-business Treasury policies may risk killing off Britain’s family firms too.
Fresh analysis by the CBI’s economics consultancy, commissioned by Family Business UK, warns that these changes to inheritance tax could jeopardise more than 208,000 full-time jobs over the course of this Parliament. That’s more than the entire construction workforce in London. The report says that as small firms retreat from long-term investment, the wider economic consequences could be severe.
The government may have unwittingly damaged a bedrock of the British economy
The government is planning to reform Agricultural Property Relief (APR) and Business Property Relief (BPR) – two long-standing mechanisms that can offer up to 100 per cent exemptions from inheritance tax on qualifying land and business assets. APR applies to farmland, while BPR covers properties used for business purposes. These proposed changes, though aimed at tightening tax loopholes, make the risks in expanding a family firm’s premises greater because of the costs involved in passing that asset on to the next generation.
The impact goes beyond employment. The expected loss in Gross Value Added (GVA) – a measure of the economic contribution of businesses – is estimated at nearly £15 billion. This projected loss dwarfs the Treasury’s anticipated gain of £1.4 billion from the tax changes. In fact, the CBI estimates that the ‘net fiscal loss’, which takes into account reduced investment, weaker growth, and higher unemployment, could end up costing the government £1.9 billion overall.
Worse still, a survey of over 4,100 family businesses and farms shows nearly half of those affected have already paused or cancelled planned investments. These firms now expect a 9 per cent drop in turnover, and many are bracing for job cuts and recruitment freezes. Almost 70 per cent of respondents say they’ve had to seek external advice just to understand the new rules – an added cost at a time when margins are already tight.
In trying to squeeze a relatively small tax gain out of wealthy individuals, the government may have unwittingly damaged a bedrock of the British economy: the family business. For a government eager to show its pro-growth credentials, it’s a policy choice that defies any growth logic for quite literally zero gain.
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