Rachel Reeves budget had several big changes of tax rules that affected all businesses, including rises in National Insurance contributions, inheritance tax reliefs on Business Property and capital Gains Tax. But the question is how do those changes affect the UK’s small family businesses, and more importantly – how can they plan for their futures?
Family Business in the UK
There are close to 5 million family business in the UK, employing 13.9 million people. Without them, the UK would lose £575 million in economic activity! The current Inheritance Tax (IHT) system allows family business owners to pass on their organisations to the next generation without significant tax penalties. IHT is currently set at 40% above £325,000 with an additional £175,000 nil-rate band for residences in estates less than £2million. Additionally, qualifying business property attracts either 50% or 100% relief from IHT.
What’s changed?
In the recent budget, only the first £1 million of combined family-owned will receive 100% relief, meaning anything over than value will receive 50% relief on IHT. The rules on lifetime giving remain unchanged, however gifts into Trusts will be subject to the new rules, with the government signalling they are going to undertake a consultation early next year on the implementation of this.
The challenge ahead
The challenge to family businesses is considering how they will fund these changes, due to most of their wealth being tied-up in the business itself. This becomes even more complex if there is a sudden change, like the death of a family member who is also a business owner.
Businesses have little choice but to either borrow, sell or use dividends to fund the IHT due in these acute cases. However, businesses who have some time to plan their succession may be able to secure a safer route through passing the baton to the next generation.
What solutions are available?
Your Accountant, legal representative or tax specialist may be able to provide a plan for your individual situation. Family Business UK and the Federation of Small Businesses also have some useful resources. At One Consultancy Solutions we combine the expertise of Accountants, Lawyers and Business experts all in one place to help you navigate these changes as smoothly as possible. Contact us if you’d like to know more.
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