Inheritance tax toll is mounting on UK family companies

Family companies are used to dealing with Benjamin Franklin’s two certainties: death and taxes. Succession is a predictable challenge, though it is astonishing how often families foul it up. Taxation ought to be predictable too, but it can be a wild card, thrown down by cash-strapped governments. Mitigating its impact sometimes requires resilience and creativity.

Scottish bakers, for instance, first rebranded their products as “shortbread” to avoid paying a tax imposed on cakes. The following century, William Pitt the Younger levied a tax on men’s hats, forcing milliners to apply for licences and absorb the impact on sales.

There is a special cruelty in combining death and taxes in a single measure, as then UK chancellor Rachel Reeves did in 2024 by limiting inheritance tax relief on business property. At the time, the noisiest protests came from family farms. But all family-owned companies, estimated to account for more than nine out of 10 of all private businesses in the UK, had good reason to complain.

The UK’s family-owned companies employ almost 60 per cent of private sector workers and contribute more than £400bn in taxes, according to the Family Business Research Foundation. Not all family companies are model businesses. But at their best, they tend to be long-term investors and they largely remain rooted in their local communities, making them vectors for the place-based growth that Prime Minister Andy Burnham champions.

Obliging family companies to set aside cash to meet potential IHT obligations could cramp their expansion and employment plans and drive some of these avatars of patient capital into the arms of impatient capitalists, such as private equity.

An FBUK survey of members in the second quarter shows nearly two-thirds of those employing more than 50 people noticed a negative impact from the reforms, even if overall confidence has ticked up since the first quarter. For instance, before Reeves’ 2024 Budget, Seth Woodmansterne, third-generation managing director of greetings card manufacturer Woodmansterne Publications, invested in new warehouse and printing capacity to meet increasing demand. “I couldn’t make those commitments today,” he told me. “It feels like we’re in survival mode . . . ”

The IHT initiative may not even meet the exchequer’s basic goal. FBUK reckons that if delayed investments and uncreated jobs are taken into account, the result will be a net fiscal loss over the life of this parliament.

So chancellor John Healey has plenty of sound reasons to emulate a predecessor with the same name, Denis Healey, who introduced business property relief 50 years ago precisely to help avoid IHT demands driving family businesses to the wall.

For more information see Andrew Hill “Inheritance tax toll is mounting on UK family companies” Financial Times, October 14, 2026.