Institute for Family Business calls on the Chancellor to provide companies with the confidence to invest for the future
16th November 2017
The Institute for Family Business (IFB) is calling on the Chancellor to use his Budget next week to maintain stable succession planning policies that encourage businesses to invest for future growth.
With around 85,000 family-owned firms expected to transfer ownership of their business to a new generation each year, the IFB is urging the Government to maintain Business Property Relief in full to enable stable succession and long-term planning. Without this important tax relief, the IFB warns that family businesses would have to keep aside money destined for reinvestment towards growth, in case they are hit with a unique tax bill not paid by other businesses.
Among the other measures the IFB is calling for are an extension to the Enterprise Investment Scheme to support growth in mid-market firms.
Hugh Clark, Chairman of the IFB said:
“Family businesses support one in four UK jobs. They are the beating heart of the UK economy, generating a quarter of GDP and paying over £133 billion in tax each year.
“It is vital the Chancellor takes steps to support the long-term growth of family business which includes providing companies with a level playing field in terms of ownership transfer. Maintaining BPR provides companies with the confidence to invest in their businesses.”
Elizabeth Bagger, IFB Executive Director said:
“All of the conversations that the IFB has had with its members point to one overarching theme- that businesses need confidence to invest for future growth.
“Without Business Property Relief, every time a family business passed from one generation to the next, money earmarked for investment would have to be used to pay a unique tax, or the business would be have to be sold, liquidated or indebted to free up the funds.
“No other business is expected to pay this kind of penalty on transfer and if family businesses had to, this would affect the growth of UK business”.
Amongst its recommendations, the IFB is calling for the Chancellor to:
Support the smooth transition of ownership of businesses between generations, committing to maintain Business Property Relief in full
- Business Property Relief is crucial relief from inheritance tax and facilitates the transfer of family ownership of businesses between generations; allowing a long term approach which focuses on stability and sustainability.
Unlock more investment in start-ups by removing the Connected Persons’ Test for the Enterprise Investment Scheme.
- The Connected Persons’ Test results in an active disincentive for otherwise non-connected family members to invest in start-ups with a family association.
Incentivise equity investment by equalising the tax treatment of debt and equity financing.
- The current tax system favours debt over equity financing, particularly since changes to dividend taxation policy have made the equity model for family firms more expensive. We recommend resolving this issue, and making progress in rebalancing the economy, by introducing the same tax treatment for equity financing as debt financing.
Extend the Enterprise Investment Scheme to support medium sized business growth
- Extending the scheme to medium sized businesses will help firms grow further on their journey to being world-leading large firms.