Inheritance tax changes are showing family businesses the door
From 6 April inheritance tax relief on agricultural and business assets is being slashed. The very businesses that benefit the UK’s economy are the ones that are most exposed to these IHT changes, says Mark Goddard
For more than three decades, business relief on inheritance tax has acted as the safety valve which allows entrepreneurs to build businesses for the long term without fear that an unexpected death will derail transfer of ownership or force a business sale. But this is about to change.
On 6 April 2026, the rate of relief from Inheritance Tax (IHT) on agricultural and business assets will be cut from 100 per cent to 50 per cent on the value of qualifying assets above £2,500,000. The impact on farmers has been well documented, but the impact on wider family businesses – around 93 per cent of UK firms in the private sector – has been less discussed.
The policy was introduced due to a perceived unfairness that a relatively small number of claimants were able to access a significant amount of relief. But this framing misses the important point that those affected are not a random group of taxpayers who aren’t paying their fair share, but founders, employers and long-term investors who make a disproportionate contribution to economic activity. The fact that the policy affects a relatively small cohort should not be the catalyst or justification for the change.
The concern around this logic was reinforced by the decision made by the government to increase the asset threshold from £1,000,000 to £2,500,000 in December 2025, which suggests a small acceptance that the original policy could have led to serious economic consequences. While this increase was welcome, it still represents a sizeable financial shift which will make difficult questions about future planning unavoidable. At its core, this policy means relatively small family businesses may be hit with a tax bill they can’t afford, particularly with their cash tied up in the business.
Selling up
These changes could push many towards making decisions driven by tax policy rather than commercial factors. For some, that may mean concluding that selling the business is the safest way to protect their family’s financial security and future. For others, it could mean a transfer of business ownership, driven by tax efficiency rather than what is best for the company. Neither of these outcomes help the UK’s growth agenda or encourage entrepreneurship.
We want the UK to be a hub for entrepreneurs, recognising that their innovation, risk taking and enterprise drives job creation and generates vital tax revenue for the entire country. However, we must recognise that for these young, capital intensive, illiquid and growth-oriented companies, equity is not cash. The very businesses that benefit the UK’s economy are the ones that are most exposed to these IHT changes; we need to create an environment in which they have capital available to reinvest in jobs, R&D and exports in the UK. The Chancellor should be concerned about any policy that encourages people to stockpile cash rather than invest it.
Policymakers should not forget how easily some businesses can relocate if the numbers no longer add up in the UK. Increasing numbers of HNWIs and entrepreneurs are considering moving overseas due to a perception that the UK is becoming less predictable and less pro-business. And other countries are waiting with open arms.
To support the promotion of investment culture and to keep trading businesses in the UK, we need a pro-business tax regime that encourages investment, job-creation and business retention. With OBR growth forecasts at risk from various headwinds, now would be an opportune moment to rethink this potentially regressive policy, taking the pressure off businesses so they can focus on driving growth. We need a sign reading “Welcome”, not “Exit”.
Mark Goddard is UK CEO of Lombard Odier