Family business owners across the UK have warned that sweeping changes to inheritance tax rules risk undermining long-term growth, forcing sales and diverting investment away from expansion, as new limits on business relief come into force.

From April 6, reforms to business property relief, now known as business relief, will introduce a £2.5 million cap on the amount that can be passed on free from inheritance tax. Assets above that threshold will be subject to an effective 20 per cent tax rate, with married couples able to combine allowances up to £5 million.

The changes mark a significant shift from the previous regime, under which qualifying business assets could be transferred entirely tax-free, and have prompted widespread concern among entrepreneurs and advisers.

Industry figures say the relatively short lead time for the reforms has left many firms scrambling to reassess succession plans that have been built over decades.

Advisers working with family-owned businesses report a surge in demand for tax planning services, as owners attempt to restructure holdings, consider partial sales or bring forward succession decisions.

Matthew Ayres, managing director of Bennie Group, a fourth-generation family business operating in construction and equipment supply, said the timeframe has been “far too short” to adapt.

“Family businesses are spending their time inwardly doing tax planning instead of growing their businesses,” he said, describing the reforms as “madness”.

Research from Family Business UK suggests the impact will be broad. Of 559 family business owners surveyed, 57 per cent said they expect to be materially affected by the changes, while only around one in ten believe they will avoid any impact.

The organisation estimates there are 5.1 million family businesses in the UK, employing 15.8 million people and generating £2.8 trillion in turnover, making the sector a cornerstone of the national economy.

However, more than a quarter of firms surveyed believe they may not remain family-owned within the next decade, with the tax changes cited as a key factor.

Business leaders warn that the reforms could accelerate the sale of family firms, as owners seek to avoid future tax liabilities or reduce the complexity of succession.

Ayres said his company has already seen an increase in acquisition opportunities, as other business owners opt to sell rather than pass their companies on to the next generation.

For some, the cost of transferring ownership under the new rules may outweigh the benefits of retaining family control, potentially leading to consolidation within industries and greater involvement from external investors.

The inheritance tax changes arrive at a time when companies are already facing rising costs across multiple fronts, including increases in the national living wage, higher business rates and escalating energy bills.

Ongoing geopolitical tensions, particularly in the Middle East, are also contributing to economic uncertainty, with higher energy prices feeding through into operating costs and inflation.

Together, these factors are creating what business leaders describe as a “perfect storm” of pressures, limiting the capacity of firms to invest, hire and grow.

Family Business UK is calling for a full review and potential reversal of the reforms, arguing that they risk weakening a vital part of the UK economy.

Chief executive Neil Davy said family firms play a unique role in supporting local communities and delivering long-term economic stability.

“They are rooted in Britain’s towns and cities in a way global corporations can never be,” he said, warning that current policies may inadvertently favour external investors over established domestic businesses.

The organisation is also advocating for broader reforms, including changes to business rates, improved access to export finance and new incentives to support employee ownership and community investment.

The debate over inheritance tax reform highlights a broader tension between raising government revenues and supporting business continuity.

While the changes are intended to ensure a more balanced tax system, critics argue they could have unintended consequences for investment, employment and the structure of the UK economy.

As the new rules take effect, the full impact is likely to unfold over several years, influencing how businesses plan succession, allocate capital and approach long-term strategy.

For family firms, the immediate challenge is navigating a more complex and costly inheritance landscape. For policymakers, the question is whether the reforms will deliver the intended benefits, or come at the expense of one of the UK’s most important economic foundations.

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Inheritance tax overhaul sparks backlash as family firms warn of lasting damage