Right across Yorkshire, home-grown family businesses are wondering – what just happened? In little more than an hour, the Chancellor delivered a Budget that could undermine hundreds of years of family business ownership in our region.
Yorkshire has a proud history of family businesses. Deep-seated values that we prize like hard work, responsibility, respect and community spirit run deep in businesses like Pavers, which was set up by my mother in 1971 and which I took over seven years ago.
But in the Budget the Chancellor put a cloud of uncertainty over the future of family business ownership right across our region by changing long-established policies that support us.
For the first time in almost 50 years, family businesses will have to pay Inheritance Tax when the owner dies – something that is forcing many to wonder whether they will now be able to pass on their business to their children.
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If I die in two years’ time, anyone in the family stepping in to run Pavers will need to find £10 million to pay the Inheritance Tax on my shares in the business. Without taking money out of the company or dramatically reducing investment, I don’t know where they would find that.
No other model of business ownership is taxed in this way during a change in ownership.
I am not arguing that family business owners should not pay their fair share of tax. We should and we already do. Britain’s 4.8 million family businesses contribute more than £200 billion in tax every year – about a quarter of all taxes received by the Government.
But let’s be clear, someone inheriting a family business isn’t taking on a prized Ming vase, family heirloom or nice house. It is the tools and fabric of a business. Family farmers are facing exactly the same threat.
The issue is that whilst Inheritance Tax is a tax on individuals, in the case of family businesses it becomes a direct cost to the company.
A family-owned business that generates £1 million in profits, yielding £750,000 after tax, typically distributes around 25% of this as dividends leaving £500,000. From this an average of £250,000 is allocated to replace, repair, and renew essential business assets, leaving just £250,000 for reinvestment into long-term growth — a hallmark of family businesses.
With the proposed Inheritance Tax on shareholdings, an inheritor would need 17 years to pay off the tax burden, assuming a 5% interest rate on outstanding debts to the Treasury.
This tax obligation could force family businesses to halt reinvestment altogether, instead diverting money into costly insurance schemes to protect future shareholders. Others would feel compelled to sell the business entirely, something that often results in ownership transferring to those with less interest in long-term growth or community support, undermining the core values that family businesses bring to the economy.
Business needs confidence. It imbues a sense of certainty that underpins the very nature of private enterprise, allowing companies of all sizes to take risks and invest in both their communities and employees to generate long-term prosperity.
Pavers achieved that through my mother when she took out a loan for £200 in 1971 to start a business she believed in.
Family business owners take enormous pride in what we do. It is our name above the door and we work hard to protect that whilst respecting our employees and the communities we serve.
But in 76 minutes, the Chancellor put all that under threat. For family businesses across Yorkshire, it potentially means that hundreds of years of patient planning and investment, creating valuable businesses and meaningful employment could be gone.
I cannot believe this is what Rachel Reeves had in mind when she announced the closing of what she and others have called a “loophole.” As the Chairman of a long-established family business, I am calling on the Government to consult with family business owners to reverse this change and protect the proud heritage of Yorkshire’s family firms.
