In this year’s Budget, John Healey has an opportunity to draw a line under that uncertainty. He must use it to scrap Rachel Reeves’ changes to Business Property Relief (BPR) in full.
When Labour entered government in 2024, it promised to put economic growth at the heart of its mission. Family businesses, which account for 93% of private sector firms, employ 15.8 million people and contribute £422 billion in taxes annually, should be natural partners in delivering that ambition. Yet the previous Chancellor’s inheritance tax reforms have done precisely the opposite. By scrapping inheritance tax reliefs her Labour predecessor, Denis Healey, put in place in 1976 to recognise the special place of family firms in the economy, she has penalised long-term ownership and weakened incentives to invest, grow and create jobs.
The Government has already acknowledged that its original proposals went too far, increasing the threshold for full relief from £1 million to £2.5 million and allowing unused allowances to be transferred between spouses. But these concessions have not solved the fundamental problem. From April this year, business assets above the allowance no longer benefit from full relief. As a result, families face an inheritance tax liability of up to 20% on the value of their business above the threshold.
For most family businesses, wealth is tied up in the company itself: its premises, equipment, stock, workforce and capacity to grow. Owners cannot simply reach into a bank account and pay a substantial tax bill without consequences for the enterprise they have spent decades building.
And those consequences are no longer hypothetical. A new Family Business UK survey of more than 530 business leaders found that 58% had been affected by the BPR changes. Almost one in four had paused or cancelled planned investment, while 23% had reduced headcount or paused recruitment. Our research also found that 11% of family businesses expect to downsize over the coming year because of the reforms.
These figures should alarm anyone serious about growth. Every cancelled investment project means less potential productivity, and every abandoned recruitment plan means fewer opportunities for workers, including young people struggling to enter employment. Every business forced to sell assets or reconsider its future risks weakening the supply chains and communities that depend on it.
Research commissioned by Family Business UK from CBI Economics estimated that the original BPR and Agricultural Property Relief reforms could put more than 200,000 jobs at risk and reduce economic output by billions of pounds over this Parliament. Far from raising money for the Treasury, there would be a net hit to the public finances of £1.9 billion over the course of this Parliament. We are now seeing that impact unfolding in the real economy.
The changes also raise a fundamental question of fairness. Family-owned firms are being asked to plan for a tax liability that does not apply to their publicly listed, private equity-backed or overseas-owned competitors. The result is a major competitive disadvantage for businesses whose commitment to Britain is measured in generations rather than quarterly results.
BPR was introduced for a clear reason: to prevent viable businesses being broken up or sold simply to pay an inheritance tax bill when an owner dies. The principle remains sound. A business should not be penalised because its founders want to pass it on intact, preserving jobs, skills and investment for the next generation.
The Government’s own fiscal interests should also give it pause. The original reforms were forecast to raise around £300 million annually – a very small sum in the grand scheme of the public finances – before accounting for the potential effects on investment, productivity and growth. If businesses scale back, shed jobs or leave family ownership altogether, the cost to public finances will far outweigh the revenue gained.
John Healey should therefore restore 100% BPR for qualifying family businesses, without an upper threshold. Anything less would leave the central flaw intact and prolong the uncertainty holding businesses back.
Family firms do not expect special treatment. They want a stable, fair tax system that recognises the value of those who build businesses for the long term. They are ready to invest, employ and help deliver growth in every postcode. The Budget must give them the confidence to do so.
Rachel Reeves’ changes have seriously damaged that confidence. John Healey now has the chance to restore it.
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Neil Davy is chief executive of Family Business UK.
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