Family businesses are the backbone of the UK economy, contributing £575 billion annually and employing nearly 14 million people. However, recent research from STEP (Society of Trust and Estate Practitioners) highlights that many family business owners lack the necessary succession plans and up-to-date Wills to protect their legacies.
With the October 2024 budget introducing significant changes to Inheritance Tax (IHT) and the availability of Business Property Relief (BPR) and Agricultural Property Relief (APR), the financial and emotional risks of inadequate planning have grown significantly.
While these changes do not take effect until April 2026, owners and stakeholders of family businesses are advised to begin exploring their options now in order to safeguard the business and its assets, maintain family harmony, and mitigate potential challenges posed by succession and wealth management under the latest UK government.
The challenges of succession planning
STEP reports that, at present, 69% of family business owners admit that they have neglected to prepare formal succession plan outlining their hopes, wishes or vision for their enterprise, and that only 32% have an up-to-date Will. This lack of preparation leaves businesses vulnerable to several significant risks, such as:
- Tax liabilities: The April 2026 changes to IHT will reduce the availability of Business Property Relief (BPR) and Agricultural Property Relief (APR), exposing many family businesses to higher tax burdens upon the death of an owner.
- Family disputes: The absence of clear plans often leads to disagreements over leadership, ownership, and financial management, risking both family relationships and business continuity.
- Business instability: Without a designated successor, businesses may falter, potentially resulting in job losses, fire sales, or dissolution.
Succession plans are an essential tool for family businesses. They work to identify potential successors and create a roadmap for transitioning leadership and ownership, establishing a vision for the business and formalising a governance structures (like family councils) which will ultimately streamline and simplify decision-making processes during and after the transition.
However, STEP has revealed that only 44% of family business owners have yet to even try discussing succession planning with their families, with the most common reasons for delaying the process being as procrastination, the belief that there is ample time to address the issue, and uncertainty over who should succeed the current leadership. However, waiting until a triggering event, such as a health crisis, death or retirement, often exacerbates the challenges of succession, increasing the risk of conflict and financial mismanagement.
Unfortunately, those business owners who haven’t initiated such important discussions will be far more likely to encounter misunderstandings and disputes when the time does come, potentially jeopardising both family relations and business stability.
Clear and open communication is always crucial. Having conversations which clarify a succession pathway and timeline whilst establishing roles and responsibilities, can help to build trust amongst the family and the business’ other stakeholders. It can also inspire younger generations to become actively involved, ensuring a smoother transferal of leadership and ownership when required.
Implications of the 2024 Budget for family businesses
The forthcoming IHT reforms will reduce the scope of BPR and APR, which have traditionally enabled family businesses to transfer ownership with minimal tax exposure. Once these changes come into force, certain family business assets may incur substantial IHT charges if not carefully structured within a succession plan.
Without taking proactive, effective action, families could face scenarios where significant tax liabilities will force the sale of business assets, threatening the continuity of the enterprise. Even though the IHT changes aren’t scheduled take effect until April 2026, waiting until the last minute to act can result in missed opportunities for strategic planning.
Proactively tackling the issue will allows family business owners to:
- Explore tax-efficient options: By restructuring ownership, utilising trusts, or making lifetime gifts, families can minimise taxable estate values.
- Prepare for transitional rules: The government is set to announce transitional provisions for BPR and APR in early 2025, offering clarity on the changes and this will be critical for understanding how to manage the shift to the new IHT framework. However, starting discussions now, both internally, and with your financial and legal advisors will position your family to take advantage of these rules when they become available.
- Mitigate family tensions: Constructive, honest discussions about how an eventual succession might play out can reduce misunderstandings and align family goals, making transitions smoother and more collaborative when they do finally arrive.
It is crucial to consider reviewing all existing Wills, trusts, and governance documents reflect current business and family circumstances to account for the impending IHT changes. Legal, financial, and tax advisors can help assess the family’s overall asset composition and develop strategies which will minimise tax exposure. This may involve creating new trusts, restructuring ownership, or leveraging tax-efficient investments, all of which can take considerable time to implement, so it is wise to start exploring your options sooner, rather than later, in preparation.
The benefits of succession planning
74% of family businesses with a succession plan in place report increased stability and growth, according to STEP. With 60% of family businesses aiming to keep their enterprises within the family, early planning is not only a financial necessity but also a commitment to maintaining the values and vision that define these businesses.
Proactively addressing succession and planning ahead provides clarity for heirs, strengthens the business’s resilience, and preserves jobs and economic contributions, whilst reducing the risks of infighting, forced sales, and legacy erosion. With family businesses accounting for 90% of the UK’s private sector, the stakes could not be higher.
Should you require expert advice or impartial advice on an area of succession, asset management or family business governance, please contact Buckles for a confidential consultation.
