The car park at Millbrook Garden Centre in Gravesend, Kent, is jam-packed on this warm Wednesday lunchtime. The café is doing a roaring trade, and upstairs, a new event space is hosting children’s groups for half term. “There’s never a dull day in a garden centre,” said Tammy Woodhouse, managing director.
The warm spring has been a boon for the plant trade, but Woodhouse is distracted by a cloud on the horizon. Shares in her business, established by her parents in 1979, are now exposed to inheritance tax for the first time, because of changes in last year’s budget from Rachel Reeves.
From April next year, business property relief (BPR) on small firms will be scaled back to shares valued at £1 million or less. Above this amount, the heirs of a business will have to pay 20 per cent inheritance tax (IHT). Although lower than the standard IHT rate of 40 per cent, the cost could still be enormous.
The upshot is that company owners may have to squirrel away cash for a rainy day, so cutting investment in their firms — or else they will have to sell up entirely when the bill comes due.
TONY JONES/OAKHOUSE PHOTOGRAPHY
“There was no consultation at all and it has affected probably a lot more businesses than people realise,” said Woodhouse, 51. She summed up the view of many owners of small firms: “We’re on a big site. The property is worth money. But that doesn’t mean we’re sitting on a lot of cash to pay a big inheritance tax bill.”
This is a point also made by farmers, who have campaigned loudly against similar steps in the budget limiting agricultural property relief: their firms are asset rich, but cash poor. The changes to BPR affect a much broader range of businesses, however.
“The business property relief issue is a far bigger issue than agricultural property relief,” said Joe Tipper, managing director of Tippers, a Midlands-based building-supply company founded in 1916. “That’s not to downplay the farmers’ issues. It’s just that they have been much quicker and more effective at having a single voice with the NFU [National Farmers’ Union].”
Joe Tipper: “Long-term thinking results in business decisions that are good for society”
WALTER TIPPER LTD
Just how big is the family firms sector? Trade body Family Business UK (FBUK) estimates that 93 per cent of all private firms in the UK are family owned, employing 15.8 million people.
The chilling effect of the BPR changes mean that small firms are now wondering whether to cut investment. Research by FBUK, to be published this week, suggests that more than 200,000 jobs could be at risk. Its survey of more than 3,000 businesses found that 68 per cent had already taken legal advice and 55 per cent had paused or cancelled planned investments.
The Treasury argues that the changes to BPR are designed, in part, to clamp down on people who use it to claim relief on shares in companies listed on Aim, the junior stock market. It insists that three-quarters of estates will continue to pay no inheritance tax at all. “The remaining quarter will pay half the inheritance tax that most estates pay, and payments can be spread over ten years, interest-free,” a spokesperson said.
“This is a fair and balanced approach which helps fix the public services we all rely on.”
But many small businesses owners feel it amounts to an assault on the values of family-run firms. “We take a long-term view on investment, stability and sustainable growth,” said Douglas Anderson, joint managing director of GAP, a Glasgow-based plant-hire firm. “Whereas all of our major competitors are public companies and they have a much shorter-term horizon.”
Douglas Anderson, front right, of plant-hire firm GAP. Businesses like his, he says, take a long-term view. “This proposed BPR change really smashes that apart”
DAVID HO/SANDIE KNUDSEN
“I’ve been here for 45 years,” added Anderson, 69, of the business that was started by his father in 1969. “If you’re investing in assets and you’re not taking a long-term view, you will not run the business properly. This proposed BPR change really smashes that apart.”
Tipper, 42, said his firm values long-term relationships with its staff and the local community, describing it as having a “purpose”. “Long-term thinking results in business decisions that are good for society in the broadest sense,” he said.
The unfairness of the move sticks in the craw of business owners, who note that the inheritance tax changes do not affect listed firms or foreign-owned companies. “It’s a direct threat singling out family businesses. That’s unfair, uncompetitive and quite frankly it’s disgusting,” said Anderson.
For those businesses caught in the IHT crosshairs, the fear is that owners will be pushed into distressed sales. This is counter to the original aim of BPR when it was introduced in the 1970s, which was to “enable businesses to be passed through the generations without being broken up”, according to Paul Falvey, a tax partner at accountancy firm BDO.
He compared the current government attitude to family firms to Germany, where there is a large “Mittelstand” of mid-size businesses. “Many more businesses are passed down through the generations in Germany … it’s hugely important to the German economy,” he said.
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There are few options for those business owners now calculating their family’s potential IHT liability. They can gift their shares and hope they don’t pass away within seven years. Or they can put shares into a trust. But these routes inevitably mean ceding control.
Labour’s recent backtracking on unpopular measures such as the scrapping of the winter fuel allowance has raised hopes of a rethink on BPR.
“On the one hand, they’re saying, growth is the most important thing. And then they bring in measures that have the opposite effect. It’s a joke. But it’s not funny,” said Anderson. His company, GAP, has proposed to the Treasury that a simple solution would be to apply IHT on shares only if the inheritors sell them within seven years.
So far, there is little sign that the Treasury will budge. It reckons that the changes to BPR and agricultural relief will raise £520 million by 2029-30.
If there is no U-turn, “from next April, we’ll start seeing some really devastating consequences,” warned William Lees-Jones, 60, managing director of the JW Lees brewery in Manchester, which is now in its seventh generation of family ownership. “People will start going to Switzerland. The last thing they want is for their lifetime’s work to result in a tax bill and people having to sell the business.”
William Lees-Jones, at the JW Lees brewery in Manchester, warns of “devastating consequences” from the tax change
ALAMY
Back in Gravesend, Tammy Woodhouse is reflecting on the “triple whammy” of national insurance hikes, living wage increases, and now BPR. “We have cut back on hiring this year. Everything’s just making it harder and harder to run a small firm.”
Still, she won’t give up on her garden centre easily. “When the sun’s shining, it’s the best business.”
