Once again, Rachel Reeves has hiked taxes without considering the consequences (Image: Getty)
This one could leave families facing a massive inheritance tax on assets that are worth a fraction of what is demanding, and in some cases nothing at all.
It’s yet another horrendous unintended consequence of the chancellor’s ill-thought out Budget. The impact will be “devastating”, a top tax expert has warned.
The first Labour Budget in 14 years caused uproar among taxpayers, farmers and businesses, and looks set to send the economy into a tail spin.
The economy grew 1.2% in the first half of the year. In September, it shrank 0.1% as Reeves and PM spread gloom ahead of October’s Budget.
Today, yet another Budget momve has backfired. This could undermine the UK’s fragile entrepreneurial culture, and put people off starting businesses altogether
I’ve just been sent a weekly tax brief by accountancy group RSM. This is normally a calm and sober technical analysis of latest tax developments.
It’s hard to stay calm and sober with Reeves running rampant, and the report is headlined: “The hidden Budget IHT risk that could light a fire-sale of businesses.”
Yep, Reeves strikes again and we’ll all pay the price in the shape of lower growth.
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Labour has infuriated farmers by hitting them with huge inheritance tax bills. Aysha Marley, family business tax expert at RSM, said she’s done the same for family-run and privately-owned businesses. “It just hasn’t received as much publicity.”
Today, there’s no inheritance tax to pay when a family business owner dies. Otherwise they’d be wiped out.
Not that Reeves cares. From April 2026, she’ll make them pay a reduced inheritance tax rate of 20% on any value of the business above £1 million.
As I’ve previously highlighted, some face huge tax bills.
I’ve spoken to when his father dies, which he can only pay by carving up the business and flogging it off to private equity firms.
That’s bad enough but it gets worse.
As Marley points out, it’s not unusual for shares in privately-owned companies to fall, sometimes dramatically, when the owner dies. “Often, these businesses are driven and led by the major shareholder. Take that person out of the business and performance may decline substantially.”
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Inheritance tax on businesses will be calculated at the point the owner dies. If the shares subsequently collapse, doesn’t care. It still wants its money.
As Marley warns: “It could leave the rest of the family on the hook for an IHT liability that they have no means of paying.”
She takes the case of a fast-growing tech company worth £5million whose shares crash to nothing after the founder and driving force dies.
“The family could end up with a business with no value at all and an inheritance liability of £1million to settle. This could be devastating for a generation of business owners.”
Marley said it could force families to sell businesses at “fire-sale” prices to pay , and still end up with a massive tax shortfall.
She said the government “does not seem to have considered these circumstances” and blasted it for failing to carry out a technical consultation before announcing this huge tax change.
Marley says Reeves needs to backtrack on her IHT raid, and she’s right. Why take the chance of setting up a business if it could bankrupt your family when you die?
Dependents could potentially lose everything, including their homes.
This devastating hidden tax blow has only just come to light. How many more nasties has Reeves left in her wake? One thing is certain: she has no idea herself.