In all likelihood you have never heard of Hertford’s last remaining brewer but, last year, we generated just under £46m in tax. We were left with nearly £15m in profit, which is vital for our reinvestment in growth and in the maintenance our pubs – each a critical part of the fabric of their community. For the duration of my time at the helm of the business, we are forecast to contribute over £1bn to the Treasury. We are nothing special – we are one of the millions of family businesses that quietly exist in the UK, making up 59% of the private sector’s Gross Value Added to the economy and 57% of private sector employment. And we, the mainly silent mass, are about to get thumped – to our detriment and, more importantly, to the detriment of the public services we fund.
Last Budget the Chancellor unexpectedly announced the cutting of business property relief in half. In a few months’ time, if an owner of our private trading company dies, 20% of the value of their holding will need to be paid to the taxman, subject to an allowance. Also caught up will be our relevant property trusts, entities that we have used for nearly a century to ensure the stability of our business to the benefit of all who rely on us, including c2,500 employees. These trusts will now be required to pay 3% of the value of their holdings every 10 years – again subject to an allowance. None of this may sound particularly alarming if fiscal nationalisation of wealth is your thing, but there is a sting in the tail.
The status of most family businesses as ‘private’ and ‘trading’ is fundamental to understanding the cause and extent of the damage of this policy change.
Where a business is a ‘public’ company with its shares traded on a market, the personal representatives and trustees will be able to sell some of those shares to pay the tax bill without the underlying company being affected or even noticing. However, this is not the case with private family companies. Our shares are illiquid – they are not on a market and their focus on re-investment rather than cash extraction would be unattractive anyway. So, the taxpayer must turn to the underlying company to help fund the bill by either distributing available cash and/or buying back the shares. Complexities of trust law mean that a number our shareholders cannot legally pay this tax charge out of distributed income but must sell their shares. Regardless, both funding routes require available cash that, under currently proposals, will be taxed multiple times on route to the taxman creating a cash call disproportionate to the original liability.
Private investment companies were not covered by business property relief because, while their shares were also illiquid, when they had to sell their underlying investment property to raise the required cash, being investment properties there was no, or minimal, impact on employment and tax generation. Trading companies are different. When a trading company is forced to sell its underlying assets, mainly its factors of production, this generates both job losses and declines in tax receipts – particularly employment taxes, VAT, and business rates. Family Business UK and CBI Economics undertook detailed research and have quantified, over a five-year period, a reduction in tax receipts of almost £1.9bn and the loss of more than 200,000 jobs.
Of course, this is disputed by the Treasury who, right from the outset, has been robust in their response to any critical analysis. Unsurprisingly, we would expect such a defence to be based of detailed impact assessments and consultation particularly as the subsequent OBR Report on 22nd January 2025 assigned the policy with a ‘high’ uncertainty rating stating that “the main driver of uncertainty is the [taxpayer] behavioural response to the measure”. Instead, what we discovered, via a series of Freedom of Information Requests over the summer, was that before the policy was announced, none of the Treasury, HMRC or the OBR had correctly assessed the impacted taxpayers (there were unaware of the impact on relevant property trusts) and, far more importantly, had not assessed taxpayer and underlying company behaviour and the impact on overall tax receipts. Only the small beneficial gain to inheritance tax receipts had been considered. In short, there is no competent and quantified defence to the Family Business UK / CBI Economics research, and the political response is now diminished to referring to the business perspective as ‘bleating.’
For 49 years and 19 successive Governments, and particularly since 1996, it has been established wisdom not to wreck private family businesses, cause job losses, reduce overall tax receipts and depress growth on the altar of gaining a relatively small amounts of tax on business ownership. Last year the Treasury already took 95.5% of the cash extracted from our business compared to the 4.5% reaching the shareholders’ pockets and yet, under this new policy, it is determined that the shareholders hold 100% of the value and need to do more to ‘pay their fair share’. I am acutely aware that a logical argument does not defeat an ideological one, but we have to go back to the Finance Bill of 1941 to find a tax policy error as bad as this.
Last year’s cut to business property relief will wreck many private family businesses – the Chancellor must rethink this anti-growth policy
