IHT blow to SME's

Beyond the Farm: The Hidden IHT Threat to Family Businesses

Recent headlines have focused heavily on how changes to Inheritance Tax (IHT) will impact the UK’s farming community. However, a significant report from City AM highlights a much larger, quieter crisis: the threat to the other 95% of family businesses that make up the heart of the UK economy.

With family firms accounting for 93% of all private-sector enterprises, the upcoming reforms represent a major shift in how business owners must approach succession planning.

The April 2026 Deadline

Effective from April 2026, the government will introduce a combined cap on Business Property Relief (BPR) and Agricultural Property Relief (APR).

• The Limit: A combined £1 million.
• The Tax Rate: Any value exceeding this limit will be subject to a 20% IHT rate.

While £1 million may sound like a high threshold, for a family business with premises, machinery, and stock, it is a very low ceiling.

A Real-World Example: The Impact on Jobs

To put this into perspective, consider a small manufacturing firm valued at £2 million. Under the current rules, the business might pass to the next generation with full relief.

Under the new 2026 rules:

• The first £1m is relieved.
• The remaining £1m is taxed at 20%.
• The Result: A £200,000 tax bill due upon the owner's death.

For many SMEs, that £200,000 isn't sitting in a bank account—it’s tied up in equipment and payroll. Paying that bill often means cutting staff, halting investment, or, in the worst cases, selling the business entirely. As Lucy Williams of Jackson Stephen noted, these tax hikes "will affect working people" because taxing the business inevitably harms the jobs that business provides.

The Call for Fairer Thresholds

Industry experts are already calling for a more realistic relief threshold of £5 million to protect genuine "working" family businesses. Until then, the message to business owners is clear: make your voice heard. As the policy currently stands, those who have spent decades building a legacy for their families are being put in an impossible position.

How Harris & Co Can Help

Succession planning has never been more critical. The 2026 reforms mean that "waiting and seeing" is no longer a viable strategy for family-run firms.

At Harris & Co, we help business owners navigate these complex changes by reviewing their current valuations and exploring structures that protect both the family legacy and the future of their employees.