Leading accountancy and business advisory firm Hazlewoods is urging family-run businesses in Wales to start their succession plans now ahead of potentially ‘catastrophic’ Inheritance Tax changes.
In Chancellor Rachel Reeves’ first Budget in October, she announced that from April 2026, the transfer of business assets worth over £1 million will be charged to Inheritance Tax at an effective rate of 20%. Although the first £1million remains exempt, the impact this will have on family-run businesses is expected to be significant.
The business relief that previously existed allows privately held companies to be passed between generations without Inheritance Tax being levied.
Nick Haines, tax partner at Hazlewoods, which has recently opened a new office in Cardiff, said: “There has been so much written about the damage that these Inheritance Tax changes will do to farmers, and rightly so, but what about the family-run businesses that are the cornerstone of our economy, which could be just as badly affected under these changes?
“Family-run businesses are lauded as the cornerstone of British industry, and with almost three quarters of SME employers in Wales family-owned, you can see why. While we don’t know exactly how many would be directly impacted by the changes, it is likely to be hundreds, if not thousands.
“Lots of our clients have already come to us to ask what they should be doing but there are likely to be other business owners who are completely unprepared. There will be elderly owners out there who have rightly kept hold of their assets and will now be worrying about whether they can hand over their business to the next generation and live for the requisite seven years to make the transfer financially viable.”
In terms of steps that can be taken immediately, Nick recommends that all business owners seek out professional, tailored advice, if they haven’t already. And in the meantime, he suggests that owners investigate their life insurance options to see if their Inheritance Tax risk is covered if they die in the next seven years, start gifting away portions of the business now, and look at their wills, as these will all need amending in the wake of the changes.
Nick warns that business owners may be just as badly affected as farmers when facing Inheritance Tax. While farmers can sell land (although this of course has its downsides), business owners will have to rely on business profits to pay the tax. However, withdrawing these profits incurs Income Tax, effectively subjecting them to double taxation.
Nick said: “Looking at a practical example of the impact of these changes, if someone inherits a £10 million business, only £1 million is fully tax-exempt. The remaining £9 million is taxed at 20%, requiring £1.8 million to be paid. If the business is the sole asset, beneficiaries must extract this from the company.
“Although they have 10 years to pay, they would need to withdraw an additional £180,000 net annually, which taxed as dividend income, would increase the combined income and inheritance tax liability to £3 million.
“Simply put, how will these businesses be able to survive? Ultimately, many of them won’t. They will have to sell to much bigger organisations and many of the family-run businesses that are so important to our economy will cease to exist.”
A consultation into the proposed changes is likely to be announced any day. Nick believes that any consultation is likely to focus on the interaction between the new rules and trusts, but the majority of the changes are likely to stick.
Nick said: “These changes will affect manufacturers, retailers, care businesses, vets, hospitality, logistics, fuel companies, the list is endless, a family business can be in anything.
“The problem is that owners have been hanging onto their businesses until they die because until now, it’s been the most tax efficient thing to do. However, there will be owners out there who now find they’re holding the asset at 80 and thinking, ‘what on earth am I going to do?!’
“The short answer is don’t wait, start planning now.”
