(Bloomberg) -- Charlie Field’s family of funeral directors have operated across London and the southeast of England for the last 330 years.
The business, CPJ Field, employs 147 people and is typical of the kind of British family enterprise that gets handed down through the decades. Charlie is generation number 10.
Today, however, he and other small business owners are worried that the model could be endangered by tax hikes from the UK’s new Labour government as it tries to fill a £22 billion fiscal hole that it blames on the previous Conservative administration.
With reports the new Labour government could ax business exemptions to inheritance tax, Field has been forced to halt expansion plans. If the existing exemption — business property relief — is scrapped, Field may have to pay inheritance tax on shares currently held by his parents, Colin and Christine.
“There are significant investment decisions that face us in the next 12, 18 and 36 months, and we are now having to tread with caution in those decisions because with aging parents, we don’t know whether we need to start accruing funds for a potential succession event,” said Field. “We are putting decisions on hold.”
Chancellor of the Exchequer Rachel Reeves is considering how to raise tax revenues, despite prioritizing economic growth and promising to drive the UK to the top of the Group of Seven nations. She recently declined to give a definitive answer three times when asked if she could specifically rule out raising capital gains or inheritance tax at a crunch budget on Oct. 30.
“This is a relief that allows family business owners to pass shares of the business to the next generation without additional tax penalties,” said Neil Davy, the chief executive officer of Family Business UK, a lobby group for the sector. He said that 80% to 90% of family business owners’ assets are tied up in their companies, meaning many owners would need to sell or divest the business to cover any tax bill.
The sector employs about 14 million people in the UK, according to Family Business UK.
Having ruled out any tax increases on “working people,” Labour has been urged by influential think tanks to raise levies on wealth. Davy, however, fears that regular small businesses could be caught in the cross-fire of measures intended to target the rich. He warns of “catastrophic unintended consequences for families and businesses and employees right across the country.”
Farming
Similar fears are playing out among the UK’s farming community, which benefits from agricultural property relief, allowing landowners to pass down farms to their children without triggering a tax payment. They say the removal of this exemption would mean family farms closing down, threatening the UK’s food security.
“We’ve moved from nervousness to real concern,” said Victoria Vyvyan, president of the Country Land and Business Association, which represents rural land and business owners. “If they think people are using this relief improperly, then it’s up to them to stop it. It’s not a reason to get rid of a very necessary relief.”
Vyvyan, from Trelowarren in Cornwall, said that many young British people had made a lifetime commitment to farming by attending agricultural college and investing in new equipment. “A lot of this stuff is not a five-year plan, it’s a 25-year plan,” she said. “And probably a lot of those arrangements were made with agricultural property relief in mind.”
‘A Lifeline, Not a Loophole’
In Slough, Caron Wallace said her family business, Allprint Supplies Ltd., would be left unable to settle any inheritance bill that came through should there be changes to the relief. Her father, Bob, is 90 and owns about a third of the business that was founded in 1981 and employs 70 people.
“If we liquidated the company tomorrow, I think it’s worth about £3.5 million, but we haven’t got that money,” said Wallace. “I think there’s about a hundred thousand in the bank.”
Business property relief, which was introduced in 1976, allows companies to be passed to the next generation without triggering inheritance tax. Family Business UK believes many firms would be sold, liquidated or broken up if inheritance tax was imposed.
“For us this is a life line not a loop hole,” said Field, who has succession at the forefront of his mind. His father, Colin, has advanced Alzheimer’s. “I don’t know how long he’s got left,” said Field. “In the event this was to change in the next few months and that was to coincide with the loss of my father, we would struggle.”
A Treasury spokesperson said in an emailed statement that the chancellor had made it clear that difficult decisions needed to be made on spending, welfare and tax. “Decisions on how to do that will be taken at the Budget in the round,” they said.
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