Britain’s family businesses face the prospect of another tax squeeze as the Treasury considers changes that could significantly increase the cost of transferring companies between generations, prompting warnings that some firms could be pushed towards extinction.
Chancellor Rachel Reeves is reportedly weighing proposals to replace capital gains tax with income tax on certain arrangements used by business owners to pass on their companies. The changes could expose some transfers to tax rates of up to 45 per cent, compared with the current capital gains tax rate of up to 24 per cent.
Under existing rules, families can use arrangements involving redeemable shares to restructure ownership when succession planning. Such transactions can attract capital gains tax treatment, potentially making it easier for owners to hand over control without selling their businesses outright.
If the proposals proceed, the tax treatment of these arrangements could change materially, increasing the financial burden on owners seeking to keep businesses within their families.
The potential changes come amid continuing controversy over Labour’s inheritance tax reforms, which are expected to raise more than £300mn. Business representatives have warned that the cumulative effect of tax changes could complicate succession planning and force some owners to reconsider whether passing their companies to their children remains financially viable.
Andrew Griffith, the Conservative shadow chancellor, accused the government of penalising entrepreneurs and companies that support local employment.
“This Labour Government seems determined to squeeze every part of the economy, punishing the people who take risks, create jobs and build businesses for future generations,” he told The Telegraph.
He argued that the proposals could make selling a business more attractive than transferring it to family members, undermining firms built over decades through personal investment and sacrifice.
“Family businesses are the backbone of Britain,” Griffith said.
The debate highlights a broader tension in economic policy: how to raise tax revenues while preserving incentives for investment, entrepreneurship and long-term ownership.
For family firms, succession is often a defining moment, with decisions shaped by cash flow, borrowing costs and the ability of the next generation to finance a transfer. A higher tax bill could force owners to sell assets, seek outside investors or dispose of the business altogether.
The Treasury’s reported proposals remain under consideration, and their final scope is not yet clear. But for owners already confronting higher costs and uncertainty, the prospect of another tax change has added to concerns about the future of Britain’s family-run businesses.
Leave a Comment