A TAX raid has come for family firms and farms as an inheritance tax overhaul was introduced this week – experts are warning “the backbone of the British economy is at serious risk”.
From this week, the quiet rewriting of inheritance tax rules has begun to ripple across the entire family business economy.
The cap on Agricultural Property Relief and Business Property Relief at £2.5 million is for businesses built on land, premises and machinery, and is easily breached.
Anything above that is taxed 20% – though two individuals in the same business or farm could pass on up to £5.65 million tax-free between them.
Experts say that behaviour is already shifting in family firms with investment plans being shelved and expansion being reconsidered – all to keep valuations below the £2.5 million mark.
This isn’t because it makes business sense, it’s because it avoids a tax trap.
The backbone of the British economy is at serious risk
Liz Barclay, Co-founder of Business111, a free advice platform for small and micro businesses, said farms and businesses will be less viable if they are forced to sell off assets to keep under the threshold.
She added: “Having been brought up on a farm I know that everything a farmer has is tied up in land, equipment and stock. There’s little slack to carry the business over a lean harvest, a poor spring or the death of a valuable animal.
“To have to sell off any of that to pay the tax office will only leave the farm ever less viable. Family businesses are the same. One generation makes the business decisions that will allow the next generation to carry on the business and help it grow and survive. Having to reduce the business viability to pay inheritance tax will mean less tax in the long run.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said many will be forced to sell up their businesses.
He added: “The backbone of the British economy is at serious risk. Assets exceeding the cap face an effective 20% tax rate, yet because this wealth is tied up in illiquid assets rather than cash, heirs may be forced to sell or take on crippling debt to settle HMRC bills. The knock-on effect is predictable. Investment is shelved, and growth deliberately suppressed to keep valuations artificially low.
“Although the allowance transfers between spouses, the policy fundamentally undermines family-run firms, asset-rich, cash-poor businesses that represent roughly 85 to 90% of all private sector enterprises in the UK. Politicians with no practical business experience are making decisions with devastating real-world consequences.”
This comes with everlasting worry
Martin Rayner, Director at Compton Financial Services, said the consequences of exceeding the £2.5 million are real.
He added: “This isn’t just about a £2.5 million cap — it signals a shift in thinking. These reliefs were never loopholes; they were designed to keep farms and family businesses intact, preserving jobs and long-term tax revenue. Break that principle, and you risk treating productive businesses as easy targets. For many firms, £2.5 million is easily exceeded.
“When it is, the consequences are real — land sold, premises lost, capacity reduced. That weakens businesses overnight. We’re already seeing behaviour change. Owners are holding back investment and managing valuations just to avoid a future tax bill. That’s a distortion of normal commercial decision-making. The bigger risk is long-term.
“A one-off tax gain could come at the cost of ongoing revenues — corporation tax, employer NI, business rates — and jobs. Once these reliefs are seen as a convenient way to raise money, they risk being revisited repeatedly. And that kind of uncertainty is exactly what holds businesses back.”
Antonia Medlicott, Founder & MD at London-based Investing Insiders, said the tax comes with “everlasting worry” for families.
She added: “£2.5 million sounds generous on paper, but in practice it is not a high bar for asset-heavy businesses. Land, premises and equipment alone can take you there, before you even consider goodwill or future growth. There is also a liquidity problem at the heart of this. These are often asset-rich but cash-poor businesses.
“A tax charge triggered on death does not arrive with a matching cash inflow, which is why forced sales become a very real risk. The unintended consequence is that succession planning becomes more complex and more urgent. Families will need to think earlier about how ownership is structured, how assets are held and how transfers are managed over time.
“The government says that 85% of estates will avoid additional tax, but for the majority, this is a relief that comes with everlasting worry, and they will fear the worst should the government reduce this limit in the future.”
The consequences are real
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said it will stop businesses growing.
She added: “When a tax threshold punishes growth, rational owners stop growing. They defer investment, avoid acquiring premises, restructure to keep valuations under the line. The government says only 1,100 estates a year will be affected, but that counts the dead.
“It doesn’t count the living owners already making worse commercial decisions to avoid a future liability their children can’t afford. A tax designed to catch the wealthy is quietly reshaping how ordinary family businesses think about their own success, battling with a government whose perverse goal is to hobble economic potential.”
Photo by Federico Lancellotti on Unsplash.
