Introduction
Family-owned businesses make up a huge portion of the UK economy. Among them are some of the UK’s biggest and best-known brands that have thrived for generations. Most, however, are first generation SMEs working to give younger family members the opportunity to take ownership. Family business owners proudly display their name above the door. For them, being in business is about more than just the bottom line. Their unique business model is driven by a purpose to invest in people and give back to communities, with the long-term goal of ensuring the succession of the business. They are supported by governments that deliver a policy environment that prioritises long-term thinking to deliver growth and stability through policies that allow family businesses to be passed from one generation to the next, without incurring a penalty. Business Property Relief (BPR), often known as Business Relief, and Gift Holdover Relief (GHR), are crucial. They enable family businesses to plan for succession, with long-term strategies that retain value within the business to drive investment and growth. They serve as an incentive to family business owners to innovate, take risks and future-proof their companies. Outside of the family business sector, these two reliefs are not well known or understood. Often characterised as “loopholes” or “tax breaks” that only benefit wealthy business owners, they can become attractive targets when public finances are tight. With governments understandably reluctant to increase taxes on working people, it is unsurprising that attention turns to other forms of taxation – including BPR and GHR within the broad regime of Inheritance Tax (IHT). Without BPR and GHR there is a significant risk that, upon the death of the head of the business, family members inheriting the company, or shares in it, would be hamstrung by significant personal tax liabilities that would have to be covered through the sale of shares to third parties, stripping assets from their business, or force businesses to close entirely resulting in the loss of jobs and wealth in communities across the country.
Worse, it would remove the incentive to set up and run a business as a family business.
This paper – produced utilising insights collated from some of the UK’s leading family businesses, and background research, puts forward the strong case for retaining BPR and GHR, ensuring family businesses are positioned to continue contributing to economic growth across the country. The Government must be wary of the consequences and potential impact scrapping BPR could have on long-established businesses. This decision could very much jeopardise their existence.
5th generation family business articulating the importance of understanding the potential consequences of BPR reform .
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