Targeting inherited riches and tax rises are causing controversy since Chancellor Rachel Reeves is accused of forsaking small family businesses while seeming to protect private equity executives from a heavy financial load. The Labour Party’s first budget in 14 years has included policies to close inheritance tax (IHT) gaps, eradicate the controversial non-dom tax status, and levy more taxes on private jet trips. Critics counter that these developments might imperil family-owned businesses, so the response has conflicted.
What Are the New Inheritance Tax Regulations Raising Concerns?
From April 2026, farms and enterprises worth more than £1 million passed down will be subject to a new 20% tax rate, half of the present 40% inheritance tax rate. Farmers and small business owners who fear the tax increases would force them to sell their family businesses have started to get worried.
National Farmers’ Union (NFU) president Tom Bradshaw expressed his dismay, saying, “Two-thirds of farms would now be subject to inheritance tax. This budget not only endangers family farms but also drives food production costs up.” He stressed that customers would eventually bear the associated higher expenses.
“I’ve got a client who built a big international brand and is in his 80s,” Chris Groves of Withers Worldwide, which offers tax advising services, expressed similar worries. He aims to forward it to the following generation. He will now have to either sell that company or go elsewhere. He cautioned that long-standing family companies may have internal power conflicts like those shown in the TV show Succession, possibly resulting in unhappy sales. “Impatient heirs and private equity funds looking to pick up businesses” would be the benefactors, he said.
How Will the Impact on Small Businesses and Family Firms Unfold?
Peter Harker, a partner at Saffery accountancy company, pointed out that the policies will also impact small firms. “You’re not talking about the super-rich here,” he said, emphasising that the inheritance tax rises will travel “quite a long way down society.”
Advocacy organisation Family Business UK attacked the Chancellor for what they saw as a betrayal of family business owners. Under the suggested IHT reforms, pensions will also be liable to inheritance tax beginning in April 2027. Furthermore, shares on the Alternative Investment Market (AIM) will now be liable for 50% tax, having hitherto been free. Though relief for AIM stocks could be withdrawn, the market surged over 4%.
The revisions to inheritance tax, expected to total more than £2 billion, represent a notable rise over the existing £7 billion total collection.
How Does the Private Equity Industry Benefit from a Lower Tax Rate?
While family companies prepare for the financial fallout, the private equity industry seems to win from a less-than-expected increase in capital gains tax on “carried interest,” the income fund managers collect from closed agreements. Originally aiming for tax receipts exceeding £500 million yearly, Labour had raised the rate from 18% to 28%, matching it with income tax rates as high as 45%. The rate will rise to just 32%, though, and by 2030, this will provide an estimated £300 million.
Presumably over lunch, fund managers toasted their lobbying win in a restaurant near Bond Street. “We got them down to 32% and made them feel like they had to be grateful for it,” one of them said. This attitude draws attention to a developing issue whereby the richest people might have too much influence on the national budget.
What Criticism Is the Tax Strategy on Wealthy Individuals Facing?
Executive Director of Tax Justice UK Robert Palmer described the shift as a “big climbdown in the face of intense lobbying from some of the richest people in the UK.” Although he praised the proposed IHT and non-dom policies, he bemoaned the Chancellor’s failure to target the super-rich for a significant portion of the tax rises.
Wealth advisers pointed out that clients are already considering ways to shield their assets from the Chancellor’s plans, including offshore trusts and life insurance policies to minimise any death penalties. “There are no prizes for being the richest person in the graveyard,” Partners Wealth Management partner Robert Record said.
According to private client consultant Obi Nnochiri of St James’s Place, most clients are unlikely to leave the UK over the loss of non-domicile tax status, which lets people live in the UK while paying taxes in another jurisdiction. Although he said “the vast majority of these changes are taxes on wealth to a certain extent,” he advised customers will probably find ways to minimise the impact before the measures take effect.
The High Pay Centre’s Luke Hildyard further noted that the richest taxes were “less ambitious than many people were expecting.”
What Additional Taxes on Luxury Travel Have Been Announced?
Reeves also proposed a 50% rise in air passenger duty for private jet passengers, increasing the fee to £450 per person to control luxury spending. More than £700 million is expected for this action. “You cannot complain about that,” a wealth adviser said. If you can buy a private jet, you can pay that tax.
Small family companies and farmers are expressing their worries as the effects of these new laws develop, as they fear a possible financial burden.
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