Labour Eyes Tax Hike on Family Businesses

Family-owned businesses are bracing for a potential tax increase under plans being considered by Chancellor John Healey, according to reports. The Labour government is reportedly exploring a change that could affect how companies pass ownership to the next generation.

The proposed measure would target the mechanism of converting company holdings into 'redeemable shares,' which are then repurchased using company profits. Currently, the proceeds from such transactions are subject to capital gains tax (CGT), which stands at 24 percent for higher-rate taxpayers. However, Healey's office is said to be examining the possibility of taxing these proceeds as income, which carries a top rate of 45 percent.

This shift could significantly increase the tax liability for business owners. For instance, transferring a firm valued at £1 million could result in a tax bill of £450,000, compared to the current £240,000 under CGT rules. Selling businesses on the open market would reportedly continue to be taxed as a capital gain.

The Treasury has declined to comment on the matter ahead of the upcoming Budget on October 28. This potential move follows recent criticism of Labour's changes to inheritance tax (IHT) reliefs for family firms.

Previously, farmers voiced strong objections when IHT charges were applied to assets exceeding £1 million, a threshold the government eventually raised to £2.5 million following protests. Businesses have also expressed concerns over rising national insurance contributions, minimum wage increases, and additional regulatory burdens stemming from new workers' rights legislation.

A consultation regarding changes to the tax treatment of shares was initiated by HM Revenue and Customs (HMRC) in June and concluded last month.

Shadow chancellor Andrew Griffith criticized the proposals, stating, "This Labour Government seems determined to squeeze every part of the economy, punishing the people who take risks, create jobs and build businesses for future generations. Labour is once again coming after the very firms that keep our local economies running."

Accounting firm KPMG has also conveyed "significant concerns" about the potential impact of such changes on family businesses.