With these potential outcomes outlined, it is important to understand what might be gained from the decision to restrict or remove the two reliefs. Efforts have been made to model how much the Exchequer might gain from any decision to restrict or remove the two reliefs – particularly the impact of restricting or removing BPR. Two prominent estimates have been calculated by the Institute for Fiscal Studies (IFS) who calculate that capping BPR at £500,000 would raise £1.1 billion in tax revenue and abolishing the relief altogether raising £1.4 billion in 2024/25 (assuming no associated behavioral changes)4. What these figures demonstrate is that the tax revenue gained from policy decisions to restrict or remove BPR are likely to be small compared to the potential revenue lost through family businesses breaking up, offshoring or closing operations. Not to mention the loss of good jobs across the country and potential increases in welfare payments. As presented above, it has been estimated that family businesses contribute £225 billion annually in tax revenue to the Exchequer under the current stable policy environment. Restricting or removing the two reliefs would significantly diminish this tax revenue, with the loss almost certainly not covered by the potential tax revenue gain that would be achieved through restricting or removing BPR. It is essential that any government fully understands that BPR and GHR represent a small investment in family businesses that delivers a strong return on investment through jobs created and the tax revenues generated through the continued existence of family businesses. The Stability Contradiction Alongside the potential negative economic outcomes and tax revenue implications of any significant reform or removal of the two reliefs, it is also important to be clear that any such decision would run contrary to how governments should work to drive economic growth.
Governments should aim to provide stable policy conditions that give businesses confidence to invest, over time, and consumers to spend.
Any suggestions of significant changes to BPR and GHR will have a considerable impact on the ability of the UK’s great family businesses – many institutions in their own right – to plan for the long-term and flourish.
As night follows day, financial uncertainty will diminish family businesses’ ability and appetite to invest in the UK, undermining the need to support private sector investment at a time when the UK performs relatively poorly compared to G7 partners. This paper makes clear what family businesses bring to UK plc and the important role they play in supporting economic growth across the country. It is essential that this role is noted and the likely long-term, structural consequences of a perceived policy ‘quick win’ in the form of BPR and GHR reform are fully understood.
Total removal of the reliefs would mean family businesses have to perform in different ways. This would not be good for the UK economy. It would discourage people from owning their businesses and there would be a focus on selling businesses after just five-ten years, which is too early in the lifecycle. We have a 20-year plan and are committed to the UK.
5th generation family business outlining how the two tax reliefs enable family businesses to adopt a long-term economic outlook.
4 Advani, A. and Sturrock, D. (2023). Reforming inheritance tax Institute for Fiscal Studies. Available from: https://ifs.org.uk/sites/default/files/2023-09/Reforming-inheritance-tax-1.pdf
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