Autumn Budget 2024: The impact on family businesses

It is fair to say that family businesses, which are rightly described as the backbone of our economy, have not fared well in Rachel Reeves’ first Budget as Chancellor. Such businesses seem to have taken a disproportionate brunt of the burden and there is genuine concern that, in long term, these changes will have an impact on the survival of multi-generational family businesses. 

For context, the statistics from the IFB Research Foundation Report prepared by Oxford Economics in 2021, tell us that there are 5.3m family businesses in the UK and between the top 100 of these, turnover exceeds £138m. These businesses are said to employ 14.2m people and pay more than £200bn in tax each year.  

And yet, it seems that this contribution is not enough for our Chancellor! The headlines from the budget that will have a direct impact on family businesses on a day-to-day basis are that from April 2025:

• Employers NI contributions will increase from 13.8% to 15% and the threshold from when contributions become payable will reduce from £9,100 to £5,000.
• The National Living Wage will increase by 6.7% to £12.21 an hour (with increases for those under 20 as well).

These increases are going to hit businesses hard when they follow the cost-of-living crisis, the inflationary wage pressure faced over the last few years and not forgetting the increase in corporation tax in 2023 from 19% to 25%.

If this wasn’t all bad enough, the Chancellor is making changes to Business Asset Disposal Relief (already capped at a lifetime limit of £1m by the previous government), which effectively phases it out over the next couple of years. Rates are rising from 10% to 14% and then 18%.

The big punch, though, comes from the restriction on the availability of inheritance tax relief. From April 2026, qualifying business and agricultural assets worth more than £1m will no longer attract 100% relief from inheritance tax. They will be subject to a charge to IHT at a reduced rate of 20%. This includes AIM listed shares (but these do not benefit from the £1m tax free allowance). 

Introducing a 20% IHT charge to business owners (and farmers) is extremely punitive and likely to be damaging to the longevity of family businesses. Business Relief was introduced in the 1976 Finance Act to ensure that family businesses could survive as trading entities following a death, without having to be sold or broken up to pay IHT. And yet we are now facing a landscape where that is going to be unavoidable for some.

Extracting money from a business to pay the IHT bill on the death of an owner will have its own tax implications or in the alternative, the deceased person’s estate will have to take the burden and meet the liability.

And if you are reading this and struggling to feel sorry for the business owner and their family, what about the people they employ? Our business owner clients feel the responsibility they have to their employees, who in most cases are viewed as extended family. If these businesses can’t survive the increased tax burden on them on a day-to-day basis and then on the death of an owner, the implications will be further reaching than the Chancellor may have considered.

We'll be keeping a close eye out for further detail as it emerges – and we advise business owners to take advice on the available planning opportunities which might safeguard the family business for the longer term.