Starting in April 2026, thousands of family business owners will face inheritance tax liabilities when transferring assets to the next generation, according to the chancellor.

The previously established business property relief will be eliminated for all but the smallest enterprises, with a new arrangement introducing a 50 percent relief rate for inheritance tax. This change leads to an effective tax rate of 20 percent.

This relief has historically allowed families to pass on business assets without imposing substantial tax burdens on heirs, which could threaten the viability of otherwise successful businesses.

Alongside the termination of a comparable relief for agricultural assets, these tax reforms are projected to generate an additional £500 million annually by 2027, as indicated by the Office for Budget Responsibility (OBR). While immediate anti-avoidance measures are now in place, the OBR estimates that up to £300 million per year in potential tax revenue may be lost as families pursue more aggressive tax planning strategies.

According to estimates from Oxford Economics, there are around 1.2 million family-owned businesses with employees, complemented by approximately 3.6 million sole proprietors.

The chancellor noted that family businesses valued at up to £1 million would retain full relief, aiming to “help protect” these businesses, with three-quarters of claims remaining unaffected by the recent changes.

However, Neil Davy, chief executive of Family Business UK, criticized the changes as a “betrayal of Britain’s dedicated family business owners” and a failure of the government to grasp the significance of business property relief for the sector.

Davy emphasized that these reliefs provided family firms a competitive edge against business models, like private equity ownership, that do not face similar tax obligations.

Steve Rigby, co-chief executive of Rigby Group—a company founded by his father in 1975—expressed concern over the implications of abolishing the relief.

He explained that a family member inheriting a business would need to generate liquidity by extracting a dividend, resulting in an effective tax rate of 38 percent. He noted, “The logical choice is to sell. This area of the budget has been poorly crafted,” he stated.

Additionally, the chancellor has decreased the inheritance tax relief for investments in private companies to 50 percent. Rachel Reeves indicated that this change would impact only 0.3 percent of estates annually.

Financial advisors often recommend wealthy families make such investments as they offer “significant estate planning opportunities.”

Rachel Nutt, a partner at the accountancy firm MHA, stated that these modifications would prompt owners of private company shares to “radically rethink their exposure to inheritance tax.”

“If those shares are not left to a spouse upon death, an effective rate of 20 percent will now apply on the total share value exceeding £1 million, upon death,” she explained. “For instance, a £30 million business could encounter an unforeseen tax bill of £5.8 million required to be settled by the estate.”