Inheritance Tax: Family-owned Businesses

John Hayes Excerpts

Tuesday 3rd June 2025 Westminster Hall

[Sir John Hayes (in the Chair)]

I will call Susan Murray to move the motion, and then the Minister to respond. I remind other Members that they may make a speech only with permission from the Member in charge of the debate and the Minister.

[Susan Murray (Mid Dunbartonshire) (LD)]

I beg to move,

That this House has considered the impact of Inheritance Tax on family-owned businesses.

It is a pleasure to serve under your chairship, Sir John, and a privilege to lead this debate on a matter of real consequence to our economy. I begin by paying tribute to the extraordinary contributions that family-owned businesses make across the country, not least in my own Mid Dunbartonshire constituency. They are not just economic actors; they are part of the fabric of our communities. They offer good local jobs and apprenticeships, sponsor local sports teams, support local charitable activities, and keep our high streets and industrial parks alive with character, energy and local pride.

According to the Fraser of Allander Institute, in 2025 family-owned businesses are in turbulent and uncertain times. They are facing national insurance increases, with many scaling back plans for workforce expansion and recruitment as a result. The latest quarterly economic indicator from the Scottish Chambers of Commerce network presents a stark picture, as businesses face pressure that threatens to derail growth, investment and competitiveness. Taxation is now the No. 1 concern facing Scottish businesses.

--- Later in debate ---

[Susan Murray]

I certainly agree that we need to protect our family-owned businesses and do everything we can to help them to thrive, rather than putting them in a position whereby the economy is at risk of losing both jobs and growth.

I will finish the question that I was putting to the Minister. Will he consider amending the proposed legislation to ensure that the changes do not weaken genuine family businesses, and make the transfer of shares in a family business to the next generation exempt from inheritance tax for seven years, provided that the business is not sold in that period? If it is sold within that period, inheritance tax would become payable, along with the capital gains tax, both of which could be funded from the proceeds of the sale.

This Government have stated that growing the UK economy is essential, but attacking the backbone of the economy—the family businesses that have proved they can adapt and change rapidly to meet changing market needs and conditions, and that support supply chains and local jobs—must not happen. Family businesses should be supported, not raided for a relatively de minimis gain to the Exchequer.

[Sir John Hayes (in the Chair)]

Before I call the Minister, I hope he will leave me a couple of moments at the end of the debate to put the question.

--- Later in debate ---

[James Murray]

My hon. Friend is a great champion of businesses and farmers in her constituency. When we were deciding how to reform agricultural property relief and business property relief, we made sure that generous tax reliefs still existed in the tax system precisely because we want to continue to support small and family-owned farms and businesses in particular. I will come to those in a moment.

I am conscious that you asked me to give you a few moments at the end, Sir John. Do you mean at the end of my remarks?

[Sir John Hayes (in the Chair)]

I need about 15 seconds at the very end of your remarks.

[James Murray]

Got it. To conclude my remarks on the wider support that we are giving to businesses, I also draw hon. Members’ attention to the fact that we committed in the “Corporate Tax Roadmap”, which was published at the autumn Budget, to maintain the small profits rates and marginal relief at their current rates and thresholds, as well as the £1 million annual investment allowance.

I know that many Members are concerned about the reforms to inheritance tax that are the subject of the debate, so I will now turn to them. The reality is that the full, unlimited relief introduced in 1992 has become unfair and unsustainable, particularly in the economic context that we inherited. Under the current system, the 100% relief on business and agricultural assets is heavily skewed towards the wealthiest estates, which is clear from the latest HMRC data from 2021-22. More than 50% of business property relief was claimed by just 4% of estates making claims. That means that the wealthiest few per cent of estates claimed £558 million in tax relief. That contributes to the very largest estates paying a lower average effective inheritance tax rate than smaller estates. It is neither fair nor sustainable to maintain such a large tax break for such a small number of claimants, given the wider pressures on the public finances. It is for that reason that the Government are changing how we target agricultural property relief and business property relief.

Under the reformed system, estates will still benefit from 100% relief for the first £1 million of combined assets from April 2026, and on top of that there will be an uncapped 50% relief on further assets. That means that inheritance tax will be paid at a reduced effective rate of up to 20%, rather than the standard 40%. Those reliefs sit on top of the standard nil-rate bands and other exemptions, such as transfers between spouses and civil partners.