Inheritance tax changes could mean the end for some family-owned firms, accountant warns

A Birmingham accountant believes upcoming changes which mean inheritance tax must be paid on family businesses from 2026 could lead to the demise of some family-owned firms.

Morgan Davies (pictured), managing director at Prime Accountants Group, based in Newhall Street, reckons some who inherit family firms will be left with no choice but to sell the company or parts of it to pay their tax bill following the changes, which will be introduced from the start of the next tax year on 6 April 2026.

The issue has received widespread attention in relation to farmers, with Google Trends data showing huge increases in searches around inheritance tax terms related to agricultural businesses.

Searches around inheritance tax peaked in November, the same month that TV presenter Jeremy Clarkson joined a farmers’ protest march against the changes.

But Google’s breakout search terms from the time – those in which search interest grew by more than 5,000 per cent – were dominated by agriculture-based queries.

Morgan said this indicated that, while news of the changes for farming family businesses had reached the public consciousness, owners of family businesses in other industries may not have become aware that the changes will apply to them too.

He explaoned: “Small businesses are the lifeblood of our economy, and my fear is that these changes could mean the end of some family-owned businesses. Some who inherit them will soon be faced with no choice but to sell the business or asset strip it when inheriting, so they can cover the inheritance tax bill.

“Business owners may instead choose to take money out of their company to gift it to family instead of leaving it exposed to taxation – but this could stifle the company’s growth.

“While the story has been spoken about widely in relation to agricultural family businesses, my concern is that some family companies in other industries may not realise that these same regulations will also apply to them.”

Where family businesses were previously exempt from inheritance tax, businesses which fall within an estate upon death will have inheritance tax levied on the company’s value above £1m following the changes.

The rate payable will be half of the usual 40 per cent for inheritance tax, meaning those inheriting a family firm will face a 20 per cent tax bill.

Morgan said the move could lead to family business owners reconsidering their financial and succession planning.

He said: “There is the potential to sleepwalk into an inheritance tax situation because it’s an emotive area of tax planning which people don’t like to acknowledge.

“Some may now choose to pass their company shares to their children or spouse earlier than originally planned so that inheritance tax isn’t payable, but this has implications in itself. They may not be ready to pass over control and they may wonder if those receiving the shares are the right custodians for the business, or if they’re not ready yet.

“There is planning which can be done in response to the changes, and the right solution will look different for each business owner, as tax and estate planning is personal.”