Family-run construction firms are still facing an “existential” threat despite the government’s changes to the inheritance tax cap.
The warning comes after chancellor Rachel Reeves announced in December that she would lift the threshold at which 20 per cent death duties apply to family-owned businesses from £1m to £2.5m.
Under the changes, spouses and civil partners will also be allowed to pass on up to £5m in qualifying business assets between them.
The government had first announced the measure to cap the threshold at which 100 per cent business property relief (BPR) applies to £1m in the 2024 Budget.
The tax change will come into effect in April.
Campaign group Family Business UK (FBUK) chief executive Neil Davy said that although the slight relief was “absolutely” welcome, any cap would still pose a major threat to large construction firms.
“The increase in the cap helps smaller businesses, but for the majority of medium and large firms it has a material impact on their ability to invest and grow. That is why we are calling for the cap to be removed entirely,” he told Construction News.
“Larger construction firms are still facing an existential threat when it comes to this piece of legislation. So while welcoming December’s news, we will also consistently maintain that the best and most productive course of action to support and incentivise growth and investment is to remove the caps entirely and to reinstall those reliefs in full.”
The Home Builders Federation and Builders Merchants Federation (BMF) are among 32 trade associations that signed an open letter to the chancellor in 2024 warning about the negative impact of the plan.
According to the government’s own figures, 81 per cent of construction SMEs are family-run.
But firms have argued they are cash-poor and asset-rich, as they have to invest in plant equipment.
“When you look at construction companies, which are typically very asset-heavy, BPR is even more of an issue because there are not that many liquid assets business owners can suddenly draw down on,” Davy said.
“Arguably, you could say construction firms are even more greatly exposed than other organisations. Fundamentally, this needs to be reversed. We do not consider this to be a matter closed – it will absolutely be on the radar.
“It is not just us campaigning on behalf of some rich individuals – this is us saying it is anti-business, anti-growth and anti-investment. This will be one of the things the electorate will be looking at in three years’ time.
“Some businesses absolutely do face closure and some businesses are looking to sell, and that is the reality.”
Research from FBUK on the impact of a £1m cap on the construction sector found that it would result in a 9 per cent reduction in turnover, an 11 per cent contraction in their workforces and a 16 per cent drop in investment in the sector.
BMF chief executive John Newcomb said: “Many of our members are very familiar with this issue and it is something we have been lobbying against for over a year.
“We are pleased that ministers have altered their policy in the face of overwhelming concern by numerous family-owned, multiple-generational local independents in building materials and other major supply chains.”
In December, members of the Construction Leadership Council called on the representative body to further lobby ministers on the issue.
In announcing the changes, the government said: “The government has listened to concerns about the reforms. Having carefully considered this feedback, the government is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief.
“Raising the threshold will significantly reduce the number of farms and business owners facing higher inheritance tax bills under the reforms, ensuring that only the largest estates are affected.”
The change will be introduced to the Finance Bill in January and will apply from 6 April.
Read More
Nicola Harley