Family farm and business tax could cost £14.8bn in lost GVA
The government should rethink its damaging tax raid on family farms and businesses, says Neil Davy
UK MPs have returned to Westminster with fresh policy positions and new priorities ringing in their ears.
As they do so, the fallout from one of last year’s most contentious policy announcements, the family business and farm tax, should be high on the agenda.
We have long warned of the unintended consequences of altering Business Property Relief and Agricultural Property Relief. In our submissions, Family Business UK (FBUK) has raised grave concerns about the proposals.
The £1m cap, above which inheritance tax will be levied at 20 per cent, is unrealistic for most family businesses. Furthermore, it won’t rise with inflation for five years, something the government has quietly buried in the guidance notes. As a result, more businesses will be caught in the inheritance tax net.
Most family business owners simply won’t be able to pay a large inheritance tax bill. The cost will fall on the business as owners either sell assets or extract cash through dividends, attracting additional taxes of up to 39.35 per cent.
To deliver £1m net to an estate, a dividend of £1.65m is required. That’s a cost we don’t believe has entered the government’s thinking.
Harming growth
Above all, we have questioned how this planned policy change supports the government’s number one goal of creating economic growth.
Far from raising tax receipts, our research shows the reforms could lead to a £14.8b loss in Gross Value Added and a potential loss of 208,500 full-time jobs. In addition, they will produce a net fiscal loss to the government of £1.9bn over the next five years.
The timetable to implement these reforms is too aggressive. It presents a cliff edge for unprepared family businesses, creating confusion, panic and undermining the stability of millions of firms that are central to future growth.
The research, with CBI Economics, involved more than 4,000 family businesses and farms and shows the uncertainty has already done significant damage. Some 60 per cent of family businesses expect to reduce investment by more than 20 per cent and 23 per cent have already reduced headcount to plan for future inheritance tax bills – and these are bills that no Public Limited Company or foreign-owned competitor will pay.
The proposed policy changes directly disadvantage UK family-owned businesses and stem from a failure to understand the importance of multi-generational family businesses to our economy. But there is still time to stop this.
As the Finance Bill is scrutinised, MPs and Peers have a responsibility to act on behalf of the millions of family businesses and their employees.
We strongly urge the government to heed the calls for consultation and to work with family businesses and Family Businesses UK to find a way forward that achieves the government’s aim of raising tax receipts, but does so in a way that incentivises and enables family business and farming communities to invest, grow and create jobs.
Neil Davy is CEO of Family Business UK