Inheritance Tax: Family-owned Businesses

Susan Murray 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.

[Jim Shannon (Strangford) (DUP)]

I commend the hon. Lady on securing this debate. She is absolutely right to highlight the issue of taxation. Does she agree that taxing businesses at 20% based on their value at the time of the owner’s death cannot possibly take into account the owner’s personal input into the business, and leaves a situation that can run a successful business into the ground? There is only so much that one person can be taxed before the burden is too great, and the taxation the Government are pushing is definitely going to destroy the farming sector.

[Susan Murray]

I thank the hon. Gentleman for raising that issue; I completely agree.

The Centre for Economics and Business Research found that nine out of every 10 privately owned businesses in the UK are family owned, and that they provide employment for nearly 16 million people and contribute more than £200 billion in taxes annually.

[Dame Harriett Baldwin (West Worcestershire) (Con)]

The hon. Lady is making an excellent speech and I congratulate her on securing this important debate. Did she see the research published yesterday by Family Business UK, which points to the disastrous impact of the inheritance tax reforms on family-owned businesses? In my West Worcestershire constituency alone, the changes will lead to a reduction of £18 million of gross value added and of 286 full-time equivalent jobs.

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[Susan Murray]

I thank the hon. Member for raising that issue. I have seen the research and will refer to it later in my speech. That was a timely publication.

[Graham Stringer (Blackley and Middleton South) (Lab)]

I am grateful to the hon. Lady for being generous on this important issue. When she spoke about the contribution that family businesses make, she could have been talking about J. W. Lees, a brewery in my constituency that has a nearly 200-year history of making contributions to the local community and brewing very good beer, or to Joseph Holt, which is on the edge of my constituency. The Confederation of British Industry estimates that the proposed changes to business property relief will lose the Government nearly £1.9 billion. Does the hon. Lady agree that before the Government go through with the changes, they should have a consultation that looks at the impact on tax and local family businesses?

[Susan Murray]

I completely agree: it appears that there are many factors the Government have not taken into account.

The situation was brought home to me by a local company in my constituency: Archibald Young Ltd Founders and Engineers, a family-run foundry that has been operating in Kirkintilloch since 1959—not quite as long as the business mentioned by the hon. Member for Blackley and Middleton South (Graham Stringer). I thank Ian Young for sharing his company’s position and highlighting the vital role that it plays in defence by producing high-precision critical components. Since it was established, the company has grown steadily over three generations. At one time, Scotland had over 260 foundries; it now has 12, of which 11 are family-owned, and all are third generation.

[Sir Edward Leigh (Gainsborough) (Con)]

The hon. Lady is making an excellent speech. Will she make the point that we do not really understand where the Government are coming from? I understand why they want to claw back money from big estates, or from people who buy farms just to avoid inheritance tax—not Jeremy Clarkson of course; he is a fantastic chap—but I cannot understand why they are focusing on family farms. Will the hon. Lady make the point that the National Farmers Union has offered various compromises, and the Minister should meet the NFU in a positive way to ensure that we keep our family farms run by families?

[Susan Murray]

I agree; it is important we understand that these businesses and family farms exist in their own right and are not simply personal property, even though they are family owned.

Today, under Andrew Young, Young’s foundry continues to provide skilled and specialist manufacturing from its bases in Kirkintilloch, Motherwell and the north of England. Like so many of the family-run firms we are here to talk about, its success has been built over decades of hard work and reinvestment in its business and workforce, yet recent Government policies are putting that at risk.

Clearly, family-owned businesses can cope with challenges in the economic and business environment, which they have navigated over generations, but when Government policies are hostile to their success and survival, their ability to create jobs and grow the economy is eroded and their future is uncertain. Whether it is rising energy and employment costs, burdensome business rates or disproportionate regulatory hurdles, these enterprises face challenges that their multinational competitors are often better equipped to absorb, or that they do not face at all.

The reforms to business property relief and agricultural relief announced in the 2024 autumn Budget have dealt family businesses a blow that risks undermining the very principle of intergenerational succession that has been at the heart of their success. They must retain profits to reinvest in business assets, to enhance business competitiveness and invest in product development.

Prior to the reforms, the shares held in private family-owned businesses could be passed on upon death to the next family generation, free of inheritance tax. This was enabled by the shares qualifying for 100% business property relief. The 2024 Budget introduced a new £1 million relief cap beyond which inheritance tax is due, with business property relief of 50%, resulting in an inheritance tax charge of 20% being applied to such transfers upon death. This sudden change means that family financial planning opportunities are much more limited. Under the new rules any lifetime transfer of business property relief or agricultural property relief assets made on or after 30 October 2024 will be subject to the new relief limits if the donor dies on or after 6 April 2026.

GAP Holdings Ltd is another family-owned business based in my constituency. I thank Mark Anderson of GAP for allowing me to share his company’s position in this debate. He has also met the Secretary of State for Business and Trade and colleagues. Founded in 1969, GAP’s tool-hire business has grown dramatically. By reinvesting in its assets over the past 10 years, it has tripled its turnover and now employs over 2,000 people across the UK. GAP’s annual profit to March was £44 million, and its earnings before interest, taxes, depreciation and amortisation were £132 million. For GAP, the potential inheritance tax charge arising upon the death of the second generation would amount to tens of millions of pounds. The proposed £1 million relief cap would make no meaningful difference to the size of the problem. Three months ago, GAP exceeded the £1 million mark in its total donations to charitable causes. That is the kind of benefit that these businesses bring to the community.

The inheritance tax changes would require the independent valuation of companies. Will the Minister clarify whether there is a consistent and defined methodology for that activity? When a family business owner dies and leaves shares to the next generation, there is no cash available to pay inheritance tax liability and no windfall to successors. In practical terms, it is business as usual, and the business continues to use its assets to trade and contribute economically to the local community. It is not the same as selling a business; however, it may force the company to be sold completely to pay the liability.

Will the Minister confirm that it is not the Government’s intention that a family-owned business that has been passed down through the generations is forced to be sold as a result of the change, or forced into failure by having to take on unsustainable levels of debt?

[Graeme Downie (Dunfermline and Dollar) (Lab)]

I congratulate the hon. Lady on securing this debate on a very important issue. Like herself, I have spoken to GAP, as well as other family businesses in my constituency. Does she agree that although the Government are absolutely right to ensure that we have enough funding to pay for public services through tax changes, one option might be to allow businesses to pay inheritance tax in the way proposed if that business is passed on to another family member, so that the tax liability is still met, but in a way that does not impact on future generations and allows the businesses to succeed and thrive?

[Susan Murray]

It is important to look at all ways to make sure we have a system that does not cause the demise of family-owned businesses.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I could be wrong, but I am pretty sure that the guidance from His Majesty’s Revenue and Customs states that, at present, where there is 100% relief, valuations for BPR are done on the basis of the book value, which is, as my hon. Friend will know, often very different from an asset’s actual value. That being the case, I wonder how easy it would be for the Government to have reached any reasonable understanding of the actual value of the assets that they now seek to tax.

[Susan Murray]

That was the point I was making when I asked the Minister whether there is an established methodology to make sure that the valuation of companies reflects the current situation.

This change does not target the ultra-wealthy or global conglomerates. In many parts of the UK even modest enterprises, especially those with land and equipment, which are often the biggest local employers, exceed the £1 million relief cap. Unlike large corporations, family businesses cannot just offshore ownership structures or use complex tax arbitrage to avoid the costs.

I am sure that every Member present, including the Minister, agrees that preserving the businesses at the heart of our communities should be the Government’s priority, not erecting barriers that create an environment too toxic for family businesses to survive. Will the Minister consider raising the relief cap to £2 million, as requested by the Scottish Chambers of Commerce network? That would make more family businesses exempt from this dangerous inheritance tax, thereby protecting jobs and local businesses.

The reality is that the Government have not undertaken an impact assessment, and according to estimates by the Office for Budget Responsibility, the changes to business property relief and agricultural property relief will raise only around £1.8 billion over a four-year period. That amount comes with a high uncertainty rating, because behaviour change might alter it significantly, and it cannot be compared with the £27 billion of VAT, late PAYE and national insurance that HMRC is yet to collect.

Forcing family businesses to reduce investment, withdraw capital, dispose of assets or sell or shut their business entirely to release cash to fund inheritance tax liability will weaken the competitiveness of not only the businesses themselves, but the wider UK economy. The changes may be well-intentioned, but they are misdirected in their execution. They risk treating genuine business owners in the same way as passive investors, and in doing so they ignore the fact that these reliefs were originally designed to protect the continuity of real working businesses in real communities.

In conclusion, will the Minister consider amending the proposed legislation to ensure that the changes do not weaken genuine family businesses—

[Carla Lockhart (Upper Bann) (DUP)]

The hon. Member is making a very powerful speech. Before she closes, it is important for us just to home in on the figures. A Family Business UK report shows that in my constituency the changes to business property relief and agricultural property relief will result in a £23.63 million reduction in gross value added and the loss of 381 full-time equivalent jobs, as well as being the end of many family farms. Multiplying those figures out across the United Kingdom means the loss of 208,000 jobs, a £14.8 billion reduction in GVA and a net fiscal loss to the Government of £1.9 billion. Does she agree that the death tax is immoral and should be scrapped?

[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.

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[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.

[Susan Murray]

Why do the Government not consider taxing large digital multinational corporations trading in this country in order to raise the extra revenue that is being raised from this measure, which effectively punishes the businesses that run the supply chains that export to those markets? Those businesses have relationships with specialist suppliers and are being put at risk.