Taxes on farming and family businesses could result in a loss of GVA of £14.8 billion

The government must rethink tax policies that harm farming and family businesses, says Neil Davy

British lawmakers have returned to Westminster with new policy positions and new priorities ringing in their ears.

As they do so, the impact of one of last year’s most controversial policy announcements, taxes on family businesses and agriculture, should be high on the agenda.

We have long warned about the unintended consequences of changes to Business Property Relief and Agricultural Property Relief. In our submission, Family Business UK (FBUK) has raised serious concerns about the proposals.

The £1 million threshold, above which inheritance tax would be charged at 20 per cent, is unrealistic for most family businesses. Additionally, the figure will not increase with inflation for five years, something the government has quietly buried in its guidance notes. As a result, more businesses will be caught in the inheritance tax net.

Most family business owners cannot afford a large inheritance tax bill. The losses will be borne by the business as owners sell assets or take cash through dividends, attracting additional taxes of up to 39.35 percent.

To send £1 million net to an estate, a dividend of £1.65 million would be required. This is a cost that we believe has not yet entered into the government’s thinking.

detrimental to growth

Most importantly, we ask how these planned policy changes support the government’s primary goal of creating economic growth.

Rather than increasing tax revenues, our research shows that the reforms could result in a loss of Gross Value Added of £14.8 billion and the potential loss of 208,500 full-time jobs. Additionally, this would result in a net fiscal loss for the government of £1.9 billion over the next five years.

The implementation schedule for these reforms is too aggressive. This presents challenges for unprepared family businesses, creating confusion, panic and undermining the stability of millions of companies that are critical to future growth.

This research, carried out with CBI Economics, involved more than 4,000 family businesses and farms and shows that uncertainty has had a significant impact. Some 60 percent of family businesses expect to reduce investments by more than 20 percent and 23 percent have reduced headcount to plan for future inheritance tax bills – and these are bills that Public Companies or foreign-owned competitors will not pay.

The proposed policy changes directly harm family-owned businesses in the UK and stem from a failure to understand the importance of multigenerational family businesses to our economy. But there is still time to stop it.

As the Finance Bill is scrutinized, MPs and peers have a responsibility to act on behalf of millions of family businesses and their employees.

We strongly urge the government to heed the call for consultation and work with family businesses and Family Businesses UK to find a way forward that achieves the government’s aim of increasing tax receipts, but does so in a way that incentivizes and enables family businesses and farming communities to invest, grow and create jobs.

Neil Davy is the CEO of a British Family Business