After the farm tax fiasco, now Labour plot Budget raid on family businesses

By the Editorial Team · Tuesday, October 20, 2026

The UK government is considering changing the tax treatment of proceeds from redeemable shares in family businesses, potentially increasing the tax rate from 24 percent capital gains tax to 45 percent income tax on transfers between generations. This change could substantially raise the cost of business succession for family firms, which make up the majority of private sector companies and employ millions, prompting widespread concern about the impact on their continuity and growth.

Family businesses in the United Kingdom are facing potential changes to tax rules that could significantly affect the way business ownership is transferred between generations. Reports indicate that Chancellor John Healey is considering proposals to alter the tax treatment of proceeds from redeemable shares, a common mechanism used by entrepreneurs seeking to retire and pass on their businesses.

Currently, business owners who convert their holdings into redeemable shares and sell them back to their companies pay capital gains tax at a rate of 24 percent for higher earners. Under the proposed changes, these proceeds could instead be taxed as income, subject to the top rate of 45 percent. This shift would increase the tax burden on someone passing down a £1 million firm from £240,000 to £450,000. Notably, sales of businesses on the open market would remain subject to capital gains tax, a distinction that could raise hundreds of millions of pounds annually.

The proposals follow a June consultation by HM Revenue & Customs (HMRC) on changes to the tax treatment of shares, which closed recently. The Treasury has declined to comment ahead of the upcoming Budget announcement scheduled for October 28.

The potential revisions have drawn criticism from business groups and industry leaders who argue that family firms are already under substantial financial strain. Family businesses constitute approximately 93 percent of all private sector firms in the UK, employing around 14 million people. Representatives warn that further tax increases on succession could jeopardize their continuity and growth.

Neil Davy, chief executive of Family Business UK, highlighted ongoing challenges faced by family-owned firms, including increased red tape and rising operational costs since Labour returned to power. He stressed the importance of maintaining full Business Property Relief to support long-term investment and warned that making succession more difficult would be counterproductive.

Similarly, Steve Perez, founder of drinks company Global Brands, described the proposed measures as an “attack” on family businesses, emphasizing the decades of effort and investment involved in building these enterprises. He called on the government to foster an environment that encourages legacy and growth rather than imposing barriers.

The concerns echo earlier disputes over inheritance tax reforms affecting family farms. Labour previously introduced a 20 percent charge on farm assets exceeding £1 million, sparking protests from farmers who argued the policy threatened their ability to maintain family ownership. Following widespread opposition, the government raised the threshold to £2.5 million.

Shadow Chancellor Andrew Griffith criticized Labour’s approach, stating that the party appeared to have learned little from the controversy surrounding farm taxation. He argued that fostering business growth and hiring should take precedence over additional tax measures that could hinder family enterprises.

As the Budget date approaches, family businesses and trade groups await clarity on whether these proposals will be included and what impact they may have on business succession and economic growth in the UK.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.