More than half of family-run businesses and farms have paused or ditched investments as they scramble to cut costs ahead of Rachel Reeves’s inheritance tax (IHT) raid, data shows.
More than 55pc of businesses surveyed by Family Business UK and CBI Economics said they had cancelled investments or put them on hold in the wake of the Chancellor’s October Budget, in which she capped the longstanding tax relief on properties used for business and agriculture at £1m worth of assets.
The move was designed to clamp down on wealthy landowners using property to avoid tax, but has proved controversial among farmers and business owners, who say they could be forced to sell up to be able to pay the levy. According to the survey, 12pc of respondents plan to sell their business to cover the tax increase.
Lance Forman, who runs London’s oldest salmon smokehouse H Forman & Son and is a former Brexit Party MEP, said: “People don’t run family businesses for a tax loophole – it’s bloody hard work.
“Much better to keep these businesses going, so they employ people, so the Government receives PAYE (pay as you earn) on the employees’ salaries, income tax on dividends, capital gains tax if the business is ever sold at some stage.
“To tax a business just because the owner happens to have died, it shows a complete lack of understanding of the decisions that people make in starting up and running businesses.”
Family Business UK said the tax rises could result in more than 208,000 jobs being cut and a net fiscal loss of £1.9bn by the end of this Parliament.
It comes after Mel Stride, the shadow chancellor, told The Telegraph that the cut to business property relief (BPR) would lead to an increase in UK companies being sold to foreign buyers, as he argued Labour had “lost sight” of how to support entrepreneurs.
Nearly a quarter of companies surveyed said they have paused recruitment or had made cut jobs since the Budget. Companies face an extra hit from next month when employers’ National Insurance (NI) contributions rise. A further 23pc said they planned to cut jobs or pause recruitment before the IHT changes kick in next year.
Farmers argue they will be unfairly penalised by the tax changes because many of them are asset rich but cash poor after facing years of soaring costs and squeezed margins. Nearly half of farmers surveyed said they had cancelled or paused investments since the Budget.
Some business owners have also turned to expensive life insurance policies. Almost a quarter (24pc) of those surveyed said they may take one out before 2026.
Steve Perez, the owner of a string of hotels and the drinks company Global Brands, revealed in February he was taking out a £6m policy so his family would not be forced to break up his business empire when he dies.
Family Business UK added that around one in five businesses it surveyed had reduced charitable donations or community activities since the Budget.
Neil Davy, of Family Business UK, said: “Across every sector, decisions are now being taken to cut jobs, reduce investment and sell assets threatening the future of thousands of businesses farms and the sustainability and security of UK farming and food production.
“Ultimately, it will be the working people, and communities right across the country, who depend on family-owned businesses and farms who’ll pay the price.”
A government spokesman said: “While we do not recognise this analysis, we remain determined to make the tax system fairer.
“The vast majority of estates will not have to pay any inheritance tax at all under our changes, and we are providing the stability businesses so desperately need by capping corporation tax for the duration of parliament and locking in permanent full expensing to boost investment.”
