Labour’s latest tax grab threatens family businesses as Healey considers punishing parents for passing companies to their children

After targeting family farms and inheritance, Labour is now considering another tax blow to Britain’s entrepreneurs – with warnings that generations of hard work could be put at risk.

Britain’s family businesses could face yet another punishing tax raid under Labour, as Chancellor John Healey considers proposals that would make it significantly more expensive for parents to pass their companies on to their children.

In a move that has sparked alarm among accountants, entrepreneurs and Conservative politicians, the Government is examining changes that could see some business succession arrangements taxed as income rather than capital gains, potentially pushing the tax rate from 24 per cent to as much as 45 per cent.

The proposals, first reported by The Telegraph, come just days before Mr Healey delivers his first Budget on 28 October, with Labour desperately searching for additional revenue amid mounting pressure on the public finances.

For thousands of British families who have spent decades building companies, creating jobs and supporting their communities, the prospect of another tax increase raises a deeply troubling question: why does Labour appear so determined to punish the very people who keep Britain’s economy moving?

At the centre of the controversy is a method used by some family business owners when transferring control to the next generation.
Rather than selling their company outright, retiring owners can restructure their shareholdings into redeemable shares, allowing the business to buy them back gradually using its profits. Depending on the circumstances, the proceeds can qualify for capital gains tax treatment.

HMRC has been consulting on changes to these arrangements, which could result in certain payments being treated as income instead.
The financial consequences could be substantial.

Under the rates highlighted in The Telegraph’s report, a business owner receiving £1 million through such an arrangement could face a tax bill of up to £450,000, compared with £240,000 under the existing capital gains tax treatment.

That represents an additional £210,000 potentially taken by the Treasury – money that might otherwise support retirement, investment or the long-term future of the family enterprise.

The figures are illustrative and would depend on the precise circumstances and final legislation. No decision to introduce the changes has yet been announced.

Perhaps most controversially, an outright sale to an unrelated buyer could continue to receive capital gains tax treatment, potentially creating a situation in which selling a family business outside the family becomes more attractive than keeping it in the hands of the next generation.
For a Government that regularly claims to champion growth, enterprise and working people, it is a remarkable prospect.

Labour has already faced fierce criticism over changes to agricultural and business property relief from inheritance tax, which have provoked protests from farmers and concerns among family-owned companies.

Following sustained opposition, ministers increased the proposed inheritance tax relief threshold for qualifying agricultural and business assets from £1 million to £2.5 million. Nevertheless, many families remain concerned about the financial consequences of transferring farms and businesses between generations.

Now, with another possible change on the horizon, accountants are warning that the cumulative effect could threaten the survival of long-established British enterprises.

John Endacott, a partner at accountancy firm PKF Francis Clark, warned that further taxes on transferring businesses between generations risked “taxing them to extinction”.

KPMG has also expressed serious concerns that the proposals could discourage families from transferring ownership to their children.
These warnings should alarm any Government genuinely interested in protecting British enterprise.

Family businesses are not simply assets on a Treasury spreadsheet. They are manufacturers, engineering firms, independent retailers, construction companies, local newspapers, workshops and countless other enterprises that have provided employment and opportunity across Britain for generations.

Many began with little more than an idea, borrowed money and an extraordinary amount of hard work.

Their founders took the risks, worked the weekends, missed family occasions and made sacrifices in the hope of building something that would outlast them.

Yet under Labour, even the ambition of leaving that life’s work to one’s children could become another opportunity for the taxman.

Shadow Chancellor Andrew Griffith accused ministers of attacking the people who take risks and create employment, warning that Labour’s approach could make it financially preferable to sell a business rather than pass it to the next generation.

His criticism comes against an increasingly difficult backdrop for British employers.

Businesses have already been grappling with higher employment costs, increases in the National Living Wage, changes to employers’ National Insurance contributions and uncertainty surrounding Labour’s employment legislation.

The latest concerns arrive as EY-Parthenon analysis indicates that 65 UK-listed companies issued profit warnings between July and September, a near two-year high.

Although those warnings cannot be attributed solely to Government policy, they underline the fragile conditions facing parts of the economy as ministers contemplate further taxation.

The Chancellor is also confronting significant pressure to balance the public finances while meeting spending commitments, including increased defence expenditure.

According to The Telegraph, Mr Healey faces a potential £35 billion fiscal challenge if he intends to maintain existing spending plans and fulfil the Government’s defence ambitions.

But Britain’s entrepreneurs could reasonably ask why the answer to Labour’s financial difficulties so often appears to involve taking more money from those who have worked to create wealth in the first place.

There is, of course, a legitimate distinction between preventing artificial tax avoidance and penalising genuine family succession. HMRC is entitled to examine arrangements designed primarily to secure a tax advantage.

However, any reform must recognise the difference between exploiting a loophole and a retiring business owner making an ordinary, legitimate transfer of ownership to their children.

A poorly designed change could undermine succession planning, discourage investment and encourage families to sell companies that might otherwise have remained independently owned for decades.

The Treasury has declined to confirm whether the proposals will appear in the Budget, saying tax decisions are matters for the Chancellor to announce at fiscal events.

The consultation closed in September, meaning ministers still have the opportunity to reconsider before 28 October.

For a Labour Government already accused of being hostile to business, this is another deeply unwelcome signal.

Britain needs more entrepreneurs, more investment, more successful family companies and more people willing to take risks to create jobs.

It does not need a tax system that risks making the sale of a family firm more attractive than passing it to the next generation.
The great family businesses of Britain were not built by Whitehall committees or Treasury officials. They were built by people with ambition, determination and the courage to put their own money on the line.

Their success should be celebrated, not treated as an inexhaustible source of revenue.

And if Labour genuinely wants to restore growth, it could start by recognising one simple truth: you cannot keep punishing the people who create prosperity and expect the country to become more prosperous.

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