{
  "id": 16763783,
  "title": "The Budget lever Healey could pull to tax family business succession",
  "url": "https://urgent.news/2026/10/27/the-budget-lever-healey-could-pull-to-tax-family-business-succession",
  "topic": "business",
  "section": "Business",
  "published": "2026-10-27T15:43:22.000Z",
  "source": {
    "name": "City AM",
    "slug": "city-am",
    "url": "https://www.cityam.com/the-budget-lever-healey-could-pull-to-tax-family-business-succession/"
  },
  "original_language": "en",
  "account": "The proposed budget measures, detailed in Chancellor John Healey's upcoming budget, could significantly impact family businesses in the UK. One of the key proposals involves the overhaul of company distribution rules, which are currently making it easier for founders to transfer ownership to private equity firms rather than passing the business down to the next generation.\n\nOne of the contentious ideas being considered is the possibility of taxing the transfer of a business from one generation to another as income tax rather than capital gains tax. This particular proposal has already drawn criticism from business owners and entrepreneurs. However, other potentially problematic changes are also under consideration.\n\nChris Etherington, a tax partner at RSM, highlighted that the consultation also includes several other proposals that are \"much more troubling\" than the capital gains tax change. One of these proposals involves dismantling a buyout structure that many retiring entrepreneurs have found beneficial. Upon retirement, founders often leave behind families that do not have the necessary funds to buy them out. To address this, these business owners issue redeemable preference shares, which allow retirees to freeze their financial stake and gradually withdraw capital from the business over time. The shares are typically treated as an investment and are subject to capital gains tax when they are sold, typically ranging from 10% to 24%.\n\nThe proposed change would see these deferred repayments no longer recognized as an investment, but rather as a dividend. This shift would mean that the returns above the original investment would be taxed as income, rather than capital gains. For most cases, this change would result in a nearly doubling of the tax bill for retirees, with higher and additional rate taxpayers facing dividend taxes between 35.75% and 39.35%. For example, a retiree handing over £1 million could potentially face a tax bill of around £393,000, making it financially unfeasible for the next generation to pay off their parents without exhausting their capital or selling the business.\n\nChris Etherington cautioned that this overhaul could put families at a disadvantage compared to third-party buyers and discourage generational ownership. Mark Goddard, a tax partner at KPMG, echoed these concerns, stating that the government is trying to crack down on those attempting to exploit the rules for capital gains tax treatment, but warned against creating a \"large net\" that inadvertently captures innocent scenarios, hindering businesses from being passed down to the next generation or to third parties in an effective manner.\n\nAnother change being considered involves the conditions under which companies can buy back shares from retiring founders. Currently, businesses can buy back shares over several years, using accumulated profits to protect capital and ensure sufficient funds for tax payments, supplier payments, and employee wages. However, the HMRC is debating ending this by introducing a strict two-year cut-off time to qualify for capital gains treatment. If a retiring founder still holds shares beyond the two-year window, the tax break is lost, and payments are instead subject to income tax.\n\nThis proposed change has been met with concerns from advisers, who warn that businesses may be highly exposed to supply chain shocks or other issues if they are forced to purchase all shares within the limited two-year window. The HMRC did not provide a comment on these proposed changes.",
  "summary": "Thousands of family businesses could face being priced out of passing their business down to their offspring should Chancellor John Healey to use his maiden Budget to clamp down on a little-known rule making it easier for firms to transfer ownership. Treasury officials have been mulling an overhaul of so-called company distribution rules that would [...]",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}