Family businesses looking ahead with more confidence post-Budget

With the budget now behind us, there is a collective sigh of relief emanating from family business leaders. After all the rumour, speculation and worry about what might be coming, the result was better than feared for most. The sense we are getting is that this has breathed some confidence and positivity back into family entrepreneurs. There were a number of tax updates in the budget, which we will detail below along with the impact these might have for family businesses and what family businesses should be considering now that we have more certainty over these updates.

IHT row-back a significant boost

The most significant change actually came several weeks after the budget rather than during it. Business owners had been sharing their concerns at the planned changes to inheritance tax (IHT) which would see business property relief (BPR) and agricultural property relief (APR) reduced to 50% from 100% from April. The government’s announcement just before Christmas that the threshold for this would be raised from £1m to £2.5m represents a significant easing – removing the issue for many businesses and reducing the impact for others. It’s a great instance of the government listening to feedback and acting on legitimate concerns.

Nevertheless, many family and agricultural businesses will still be impacted by the IHT changes and now is a crunch time for them to get ready ahead of April, considering the succession planning steps they can take to preserve as much value as possible.

No news = good news

There were other positives in the budget – with probably the biggest being that capital gains tax (CGT) was left unchanged. There had been fears of increases to CGT which could have hit many families hard. No change here is in fact a major boost and genuine good news. There was also good news for medium-sized businesses whose exemption from the transfer pricing regime will continue following a consultation earlier this year.

However, as in any budget, there were various measures that will increase the tax take on both the business and personal fronts.

Business hits

On the business side, the reduction in writing down allowances on plant and machinery from 18% to 14% from April 2026 will have an appreciable impact for some businesses. At the same time, the phasing out of discounts on business rates for some sectors means that many companies will see their bills rise – some significantly. This is a space where we may see further government reform so may be something to watch out for. Employment costs are also set to increase, due to the uplift in the national minimum wage and also the reduction in the tax-free allowance for pension-related salary sacrifice. This will see employers paying 15% NIC on more of their employees’ contributions – which could accumulate significantly in some cases.

For hotel and accommodation businesses, the possibility of an overnight visitor levy or ‘tourist tax’ is another concern. The decision on whether to introduce a scheme in England is now up to local mayors. The imposition of such a charge would leave hoteliers with a tricky decision: pass the cost onto customers and potentially see less business as a result, or absorb the cost and make less profit? It will also create an additional administrative burden to collect and pass the monies on to the authority.

Personal tax up

On the personal side, there was an assortment of hits. The freezing of tax band thresholds until 2031 was the big revenue-raiser for the government and will impact everyone, whether business owner or employee. The tax rate on dividends will rise by 2% from April 2026 for basic and higher rate taxpayers, meaning shareholders in a business will pay more on their returns. The tax rate on savings and property income will also rise for all taxpayers from April 2027.

The property or ‘mansion’ tax that sees an additional levy on homes worth £2m or more – starting at £2,500 and rising to £7,500 for properties over £7.5m – might also impact some family business owners.

Looking forwards

Taken in the round, the budget and the later policy announcements have been better than many expected for family enterprises. Business in general – not just family firms – are relieved. Now that the taxation roadmap is clear, business leaders can get on with managing for growth and exploring the opportunities ahead of them. We are seeing many family businesses who have their sights set on expansion, M&A and new initiatives; they seem re-energised post-Budget.

However, despite this good feeling, the implications of the changes to IHT are very much there for a lot of family businesses and farmers and need to be addressed. Trusted professional advice, open and honest conversations amongst family members, effective succession planning and decisive action are all needed.

At the same time, businesses need to be aware that HMRC is scrutinising corporate structure changes closely. Making changes to group structures, such as by setting up a holding company, can be a way of improving operational efficiency while also being tax effective but the clearance application process needs to be robust.

The confidence and positivity of family business leaders was striking in our Pulse survey this summer, with 84% optimistic about future prospects. Now that the Budget has come out more positively than expected, it will be fascinating to see what the family mindset is when we release our full KPE Barometer in February.