Advisers have raised concerns that potential tax changes under consideration by Chancellor John Healey could make the transfer of family businesses to the next generation a "disaster" and harm the economy. The Chancellor is reportedly debating proposals to introduce income tax on business owners handing down companies to their children, which could nearly double the existing tax bill.
Currently, transfers can be structured to attract capital gains tax (CGT), which is charged at a lower rate. However, Mr Healey is reportedly considering a shake-up in an effort to increase revenue in his upcoming Autumn Budget.
Tim Stovold, head of tax at Moore Kingston Smith, stated that if the proposals are implemented, transactions used to return value as a capital gain to a retiring generation, allowing their children to take over, would become much more difficult or impossible. Andy Oury, tax partner at Oury Clark, described the potential changes as a "disaster" that could reduce the UK's attractiveness for investment.
Chris Etherinton, tax partner at RSM UK, noted that while the reported Budget changes may close one potential exit route, other options for passing on a family business that trigger a capital gains tax bill, rather than a large income tax liability, should still be available. He suggested structuring a sale to a family member similarly to a 'management buy-out' or gifting shares to the next generation without an immediate CGT bill.
Nicholas Smith, head of tax at Duncan & Toplis, highlighted that farming families and other asset-rich businesses could be particularly affected, especially following previous changes to the Inheritance Tax system. He warned that additional tax liabilities on wealth tied up in land, property, or business assets could create significant financial pressures.
The changes are likely to be presented by Mr Healey as a stricter approach to tax avoidance. However, some advisers have urged business owners to await the Budget on 28 October before making any decisions, cautioning that acting solely on speculation "could have lasting consequences."