Inheritance Tax Squeezes Family Business Plans

For a family company, the money needed to pass the business on may be the same money earmarked for its next expansion. That tension is driving opposition to Britain’s inheritance tax reforms, with owners warning that succession liabilities are influencing investment decisions long before a tax bill arrives. Family Business UK says the changes risk diverting funds from growth and employment towards preparations for a transfer of ownership.

The concern has an illustration at greetings card manufacturer Woodmansterne Publications. Managing director Seth Woodmansterne said warehouse and printing investments committed before the 2024 Budget would be harder to approve now, according to reporting cited by Traders Union. An FBUK survey for the second quarter found nearly two-thirds of member companies employing more than 50 people reported negative effects from the reforms. Those findings reflect the experiences of surveyed businesses, rather than a measurement of investment lost across the economy.

Since 6 April 2026, full inheritance tax relief has been limited to the first £2.5 million of combined qualifying agricultural and business property, with 50% relief above that allowance. Unused allowance can transfer to a surviving spouse or civil partner, and qualifying liabilities can be paid over ten years in interest-free annual instalments. The threshold was raised from the proposed £1 million. These provisions soften the immediate cash requirement, although spreading payments does not eliminate the liability.

The government argues that restricting relief raises revenue for public services while retaining support for businesses. Its assessment forecasts up to 1,100 estates paying more tax in 2026–27 and anticipates no significant macroeconomic impact. Campaigners dispute that outlook, arguing that forgone investment and employment could outweigh the receipts. The unresolved question concerns behaviour as much as tax collection: whether owners preserve cash, reduce expansion or sell businesses they had intended to keep within the family.