Healey's first budget may overhaul tax rules for family business handovers
Chancellor John Healey is considering changes that would tax generational business transfers as income rather than capital gains, potentially raising the tax burden for retiring owners.
In his maiden budget, Chancellor John Healey may introduce a package that reclassifies the tax treatment of family business succession. Under current rules, retiring founders often use redeemable preference shares, with gains taxed as capital gains at rates between 10 and 24 percent. The consultation proposes capping returns at the original investment amount and taxing any surplus as dividend income, which carries rates of 35.75 to 39.35 percent, effectively doubling the tax liability for many owners.
Experts from RSM and KPMG argue that such a shift could deter generational transfers and favour private-equity takeovers. Additionally, HMRC is considering ending the existing flexible buy-back period by imposing a strict two-year limit, after which payments would lose capital-gains relief and be taxed as income. Advisors caution that the tighter timeframe could expose companies to cash-flow risks during share repurchases. HMRC did not comment on the proposals.
Why it matters
The tax changes could force many family-owned firms to sell or restructure, affecting employment and the broader economy.
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