Budget 2025: Key Tax Changes For Family Businesses

Amid the myriad of Budget announcements, there are a number of tax measures which will impact family businesses. While some measures are likely to increase the tax burden, there are others which may be of help. Some of the more interesting measures included the following:

Dividend Tax Rate Increases

The Budget introduced higher dividend tax rates (by an additional 2% rate) which will increase the tax charge for many family shareholders extracting funds by way of dividend. Interestingly, the increase in dividend tax rate will not extend to the top rate of dividend tax. This will continue to apply at a 39.35% rate. The adjustment to dividend tax rates will take effect from 6 April 2026.

Savings And Property Tax Rate Increases

For those individual family owners who make interest-bearing loans or who let their premises to the family company, there are higher tax rates which will apply to such income. The tax rate charged will increase by an additional 2% and will take effect from 6 April 2027.

Transferable £1 Million APR/BPR Allowance

Thankfully, the Government announced that it will enable the £1 million 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) allowance to be transferred between spouses. Previously, the unused allowance of a spouse would have been lost on death. Any unused allowance will now be capable of being transferred to the benefit of the surviving spouse effectively ensuring that a £2 million 100% APR and BPR allowance will apply to married couples regardless of how they own the agricultural or business assets as between them. While it may not have been the announcement that many business owners were hoping for, this is a welcome common-sense change and will reduce the level of complexity that would otherwise have arisen.

Employee Share Option Expansion

The Government has widened access to a tax efficient employee share option scheme known as the Enterprise Management Incentive (EMI) Scheme. This scheme is now capable of benefitting more established businesses as it can extend to companies with the following:

• Gross assets: of up to £120 million (up from £30 million)

• Employees: up to 500 (up from 250)

• Share option value: up to £6 million (up from £3 million).

This could be particularly helpful to family businesses which were previously too large in size to benefit from the scheme and that wish to incentivise key employees who are non-family members to help drive the business forward.

Expanded Venture Capital Incentives

The Government has doubled investment thresholds for Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT), widening access to tax relief for external investors.

By way of example, EIS qualifying companies are able to raise total EIS qualifying investment of up to £10 million annually (compared to £5 million previously) or up to £20 million for “knowledge intensive companies”. In addition, companies with gross assets of up to £30 million can now potentially qualify for such investment (compared with £15 million previously).

For many family businesses, attracting EIS relief qualifying investment is out of reach due to the age of the company. However, in cases where family businesses have diversified their activities and set up businesses in the recent past, these changes will be helpful in facilitating external investment.

Other Budget Announcements

The Government also published two Budget related documents on “Entrepreneurship in the UK” and “Tax Support for Entrepreneurs: Call for Evidence”. The stated aim of the Call for Evidence is to ensure “that the tax system can help to unlock the UK’s scale-up potential” and to address the problem of too many promising firms feeling “compelled to look abroad for capital and opportunity as they grow”.

Based upon these published documents, it seems clear that the Government recognises that it needs to do more to encourage business growth and is looking at ways to support this.

However, the abiding feeling is that the Budget represented a missed opportunity and that the Government is moving too slowly in pursuit of encouraging economic growth.

About the Author - Gavin Birchall, Partner and Head of Taxes and Trusts at Birketts LLP. Find out more about the work they do for family businesses here