In an open letter, led by Family Business UK, the trade associations warn that changes to business property relief (BPR) and agricultural property relief (APR) will starve their members and the economy of investment, lead to forced, premature business sales and result in job losses across the country.
Signatories to the letter include six construction industry trade associations: Builders Merchants Federation, British Coatings Federation, Construction Plant-Hire Association, Electrical Contractors Association, Home Builders Federation and Commercial Interiors UK.
Economic modelling commissioned by Family Business UK and conducted by CBI Economics suggests that, far from raising revenue, the changes to BPR alone could result in a £1.25bn net fiscal loss to the Exchequer, lead to more than 125,000 job losses and reduce economic activity (GVA) by £9.4bn over the course of this parliament.
Changes to BPR and APR announced in the budget will mean that business and farm assets worth more than £1m will now be subject to inheritance tax at a rate of 20% when the business owner dies. Family business owners and farmers typically retain more than 90% of their personal wealth directly in the business, allocated to fund growth and investment. To cover the inheritance tax liability, business owners will be forced to take money out of the business otherwise allocated to investment, typically via dividends (taxed at 39.5%). Added to IHT, this effectively creates double taxation, Family Business UK argues.
In the group letter, the chancellor is told: “BPR and APR are not loopholes. They exist for a purpose. Introduced by Labour in 1976, they allow profitable businesses to continue trading, without penalty, when the owner dies. Where a business is able to do so, a dividend covering the cost of the IHT bill can be paid. But this comes with an additional tax cost of 39.5% – effectively double taxing family-owned businesses.
“No other model of business ownership is subject to these punitive taxes when a business transitions ownership. BPR therefore allows family businesses to compete fairly with PLCs, private equity, and other models of business ownership.”
Builders Merchants Federation chief executive John Newcomb explained why his organisation had added its name to the letter. “Merchants have existed for hundreds of years and the overwhelming majority are family-owned, small local independents, of which 75% of our members have an annual turnover of less than £12.5m. They want to pass their businesses onto the next generation to continue to serve their loyal customers and local communities. But the changes the chancellor announced in October do not encourage that, in fact, quite the opposite,” he said.
“The proposals have already caused serious disquiet and genuine anxiety as business owners turn to the BMF for assistance. Construction is absolutely critical to the lifeblood of the UK economy, but we are hearing across the industry that the changes in inheritance taxation could limit the future of the sector, with many private and family businesses across our membership reporting back that the impact of Business Property Relief will damage enterprise.
“Most BMF members are now reviewing their sales and trading forecasts for the next two years and looking at investment decisions, stock levels and staffing numbers.
“Early indications are that the proposed changes to business property relief pose significant concerns to family-owned businesses.
“We suspect owners may choose to defer or cut back on investing in or expanding their operations in the near term, in areas such as upgrading production lines, replacing plant and machinery, adding to product ranges, opening new branches, or taking on more staff, especially apprentices. This is a retrograde step for each company, and our supply chain, as it diverts money away from operational needs.
“Since business property relief was introduced by a Labour government in 1976, it has protected numerous private, family-owned enterprises from being sold or broken up to pay inheritance tax. We urge the PM, chancellor and ministers to review the situation and think again about the proposals.”
David Berry, managing director of BMF member company C&W Berry, which operates across Lancashire, said: “Keir Starmer visited our business two days after the general election was announced. I would like to ask him now how we handle this situation. For nearly 50 years, business property relief has encouraged family-owned businesses to make long-term investments, creating financially stable businesses, offering secure employment, contributing to economic growth and generating annual tax revenues. These proposed tax changes put that business ethos at huge risk.”
Rachel Fryers, managing director of Merritt & Fryers, an independent builders’ merchants with branches in Yorkshire and Lancashire, said: “The introduction of a £1m cap on qualifying business assets, leading to increased inheritance tax liability will surely have a negative impact on many, if not the majority, of businesses in our industry who are multi-generational, family-owned small to medium sized business, often operating from large sites whose assets have accrued over decades.”
