Long-Term Outlook The function of BPR and GHR facilitating smooth succession planning, enables family businesses to adopt a long-term outlook. All businesses must make a profit, but for family businesses, ensuring the company is strong enough to be passed to the next generation is more important than short term gains. Many of the UK’s family businesses have been around for several generations withstanding historic and more recent economic shocks. This resilience and longevity provide much needed stability and confidence in the local and wider economy. Moreover, the suppliers and customers of family businesses have confidence to trade with these businesses where long-term planning and resilience is enabled by the existence of both BPR and GHR. However, more than three-quarters of family businesses are first generation SMEs. Succession planning is no less important to these companies. Arguably it is even more important given the relative lack of resources and finance within these companies. In these circumstances, removal of BPR and GHR could mean these first-generation businesses are denied the opportunity to ever grow beyond this, while the next generation is denied the opportunity to step in and grow a successful family business. Investment BPR and GHR provide family businesses with the incentive to invest in their businesses, employees and local communities, ensuring the family business culture passes down generations. A common misperception around both reliefs is that they primarily benefit the individual wealth of those in the fortunate position of leading highly successful family businesses. This perception misses the mark, with the remit of the two reliefs focused on retaining value in the business, the maintenance of revenue and ensuring the effective continuation of successful family businesses. This policy commitment is mirrored by the actions of family business leaders spoken to over the course of this paper’s development, who make clear that much of the revenue they generate is reinvested to drive forward positive economic outcomes. This commitment to investment is particularly pertinent, with data suggesting that business investment in the UK has been the lowest of any of the G7 countries for the past three years2. BPR and GHR provide family businesses with the stability to invest in their businesses – driving competitiveness and positive economic outcomes. Case study exemplifying the impact of IHT removal in Sweden Lessons from overseas also help paint an important picture of the impact that reliefs – such as BPR and GHR – have on stimulating and supporting economic growth. In 2004, Sweden abolished IHT, in a move that enjoyed cross party support. The result was a boom in entrepreneurship, economic growth and tax revenues that IHT had previously suppressed. In the first instance, the abolition of IHT resulted in the return of large family businesses to Sweden (many of whom had moved abroad in the 60s, 70s and 80s to escape IHT). Swedish tax authorities found that 8,000 wealthy individuals moved assets back into the country in one four-year period. But perhaps more importantly, there was a surge in assets being transferred, not just between family members, but also to external owners. Moribund capital was rapidly shifted into younger, more innovative hands and more productive uses.
Family businesses also became more entrepreneurial in general, for previously IHT had weighed heavily on investment decisions3.
2 IPPR, 2024 , Rock Bottom: Low investment in the UK economy, https://www.ippr.org/articles/rock-bottom 3 Jayawardena, R. and Clougherty, T (2023). Family-Friendly Taxation: How to restore fairness in the tax system. Centre for Policy Studies: https://cps.org.uk/wp-content/uploads/2023/07/CPS_FAMILY-FRIENDLY_TAXATION.pdf
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