Chancellor John Healey is reportedly considering new tax measures targeting family businesses as part of preparations for the forthcoming Budget, aiming to increase revenue by imposing income tax on the transfer of businesses between generations. This move would mark a departure from the current system, which allows such transfers to be taxed under capital gains rules at a lower rate.

Under current legislation, business owners transferring companies to their children or other family members can often structure the handover using "redeemable shares." This arrangement enables the business to repurchase shares from the retiring owner using its profits, triggering a capital gains tax charge set at 24 percent for higher-rate taxpayers. By contrast, income tax on the same transaction could reach 45 percent, potentially nearly doubling the tax liability. For example, on a £1 million business transfer, the tax bill could rise from £240,000 under the existing rules to as much as £450,000 if the proposed changes are implemented.

The proposed adjustments target entrepreneurs who seek to retire while maintaining business continuity within their family. Currently, selling the company outright on the open market incurs capital gains tax but not income tax. The government’s rationale is to close a loophole that allows business transfers to avoid higher tax rates, boosting Treasury receipts by an estimated hundreds of millions of pounds annually.

These plans follow earlier measures introduced under Labour, notably cuts to inheritance tax relief affecting family-owned businesses and agricultural land transfers. Rachel Reeves, Mr. Healey’s predecessor as Shadow Chancellor, faced considerable criticism for policies that increased tax burdens on farmers bequeathing land to heirs. Initially, inheritance tax applied to farmland valued over £1 million, though the government raised this threshold to £2.5 million in response to protests. These changes, together with additional regulations on workers’ rights and minimum wage increases, have drawn concern from some business groups.

Accountancy firm KPMG expressed significant reservations about the proposed tax shifts, warning that they could deter the intergenerational transfer of ownership and put family businesses at risk. Similarly, industry voices caution that these tax hikes may discourage entrepreneurship and jeopardize the continuity of firms that underpin local economies.

Andrew Griffith, the Conservative Shadow Chancellor, criticized the Labour Government for what he described as efforts to "squeeze every part of the economy," penalizing risk-takers who create jobs and build businesses for future generations.

HM Revenue and Customs conducted a consultation on the proposed reforms over the summer, closing in mid-September ahead of Healey’s Budget announcement scheduled for October 28. The government has not yet confirmed whether it will proceed with the proposed tax changes, and sources indicate that strong opposition from the business community may influence the final decision.