Chris Gardiner, Partner at Thorntons Law, discusses the impact of Inheritance Reforms on Scotland’s family-owned business, and the steps families can take to protect their legacy.
More than 80% of Scotland’s businesses are family-owned. This is a fact that appears to have been overlooked by the Treasury when it unveiled sweeping Inheritance Tax (IHT) reforms in the Autumn Budget of 2024.
The suite of radical changes to Inheritance Tax, designed to raise an estimated £2bn in additional revenue, were presented as a decisive move to help stabilise public finances. But economists and business leaders alike are warning of unintended consequences that could far outweigh the projected benefits in relation to Business Property Relief. Some analysts predict a staggering £14.9 billion drop in Gross Value Add (GVA), due to the potential business closures and the loss of employment that comes with this.
Reforms Already Reshaping Financial Decisions
The reforms are already reshaping financial behaviour in a wider UK context. The reduction in Business Property Relief from 100% to 50% on Alternative Investment Market (AIM) shares has prompted fears of a mass exodus of companies on AIM in the coming years. Once a growth engine for small to mid-sized enterprises, shares on this junior stock market will no longer be subject to uncapped 100% relief from April 2026. Marcus Stuttard, Head of AIM and UK Primary Markets, has publicly urged the government to reconsider before irrevocable damage is done. Foreign individuals who currently enjoyed what was known as ‘non-domiciled’ tax status also appear to be ditching the UK in their thousands in favour of more friendly tax-regimes abroad, as IHT becomes payable on their global assets on death if they have been in the UK for over ten years. And whispers of the potential introduction of a broader “wealth tax” will do nothing to dissuade fears of yet more aggressive forms of taxation on their personal capital in the future.
The mass upset in response to the budget has been most prominent among the farming community. There were powerful scenes outside Downing Street when thousands of farmers marched on the capital in protest. In among all these newsworthy moments, the effect on Scotland’s broader business landscape risks going dangerously unnoticed. With the release of draft legislation for the changes to both Agricultural Property Relief and Business Property Relief from April 2026, it is clear that the recent lobbying has fallen on deaf ears and the government intends on proceeding with the tax changes, despite widespread warnings.
Scotland’s Economy Relies on Family Enterprises
Scotland’s economy has long been anchored by multi-generational family-owned enterprises, from manufacturing firms to hospitality ventures and everything in between. It is estimated that over 280,000 businesses are majority-owned by members of the same family, collectively consisting of 870,000 people and contributing significantly to regional economic resilience.
Until now, Business Property Relief was available on an unlimited value of qualifying business assets on death, meaning assets could be passed down generations without triggering punitive tax charges. Under the proposed changes, this relief will now be capped at £1 million per individual from April 2026. Beyond that threshold, a 20% tax rate will apply.
This shift has profound implications.
The Consequence of Reform
Many family businesses operate with illiquid assets such as machinery or commercial property. Without access to cash reserves, heirs may be forced to sell essential parts of the business, or the business in its entirety, to meet tax obligations. This will significantly disrupt operations, stall growth and potentially trigger job losses. Indeed, recent projections suggest that up to 48% of family-owned businesses will either reduce or freeze investment as a direct consequence of these reforms.
For many family business owners, succession is more than a financial transaction. It is the preservation of their legacy, values and identity.
Why You Should Act Now
With such significant changes on the horizon, inaction is the most dangerous strategy. It’s an understandable and tempting option, after all, there are still many unknowns, and the final details of the reforms won’t be in law until the Finance Act in Spring 2026. However, with broad policy changes already in the public domain, business owners should take steps now to review succession planning, including potentially transferring assets in advance of April 2026.
Transferring the underlying ownership of assets earlier in life can be part of the solution, but there is not a ‘one size fits’ solution for every family business. A holistic estate plan needs to be put in place, incorporating the key aspects required for business continuity, asset protection and minimising tax exposure.
How Thorntons Can Help
At Thorntons, we have decades of experience navigating the evolving landscape of succession planning through shifting fiscal agendas. Our legal and tax specialists work hand-in-hand with family businesses across multiple sectors.
We pride ourselves on being an accelerator for Scotland, supporting businesses and local communities to realise their fullest potential. We see first hand how the full implications of the IHT reforms could play out, and how the window to act is narrowing. We strongly encourage family business owners across Scotland to engage in early planning to protect their legacy.
