How 15,000 family businesses could collapse in pensions tax raid

Telegraph

2 days ago

Rachel Reeves's pensions raid could drive thousands of family businesses to collapse, experts have warned, as inheritance tax bills soar into the millions.
Unspent pensions will be dragged into the inheritance tax net from 2027 following changes announced in last year's Budget and confirmed this month.
The move will create major problems for around 15,000 businesses that run their own individual pension schemes, which will now attract the same 40pc death duty when members pass away, accountants have warned.
One businessman told The Telegraph his children would be hit with a bill of more than £10m, while Gary Smith, of Evelyn Partners, said it was 'another attack' on business owners.
During her maiden Budget, Ms Reeves announced that pensions would form part of someone's estate from April 2027.
The move will leave many grieving families facing bills of up to 67pc when inheritance tax and income tax are both payable, while some could pay over 90pc.
It could also have serious consequences for businesses that run a small self-administered scheme (SSAS), which are pension schemes set up by directors that usually admit up to 11 employees.
In addition to accepting contributions and making pension payments to retirees, the schemes are often used to buy commercial property, such as the business's own premises, and pay the resulting rental income to its members.
However, Ms Reeves's changes mean that when someone dies, such as the business owner, their share of the SSAS will now be liable for inheritance tax – with just six months to pay.
One businessman in the North of England, now partly retired, owns a family-owned logistics business. Speaking to The Telegraph anonymously, he said his children were now facing an eight-figure inheritance tax bill when he and his wife pass away.
He said: 'The proposed change is the breaking of a promise made 50 years ago.
'The SSAS provides for retirement, but the other benefit was that it was inheritance tax-free. I have two children and I thought, 'That's a great way of investing in the business, providing for retirement and providing for the retirement of my children and grandchildren.'
'Now, when my wife and I die, the fund that's built up over these will be taxed, and 40pc will be paid to the state. My concern is not that future pensions will be taxed – it's that the promise made at the start of our working lives must be respected.'
When the news broke in the Budget, he immediately rang his son to discuss the consequences.
They had already purchased one property with the scheme, which he fears will have to be sold when he passes away. Since then, they have had to turn down the opportunity to buy another one priced at £6m.
He added: 'To pay the inheritance tax bill, they'll have to probably sell property, probably at fire sale values. They're then going to have to pay any income tax on that money, 40pc or 45pc, and the 40pc inheritance tax. It's scandalous. It's daylight robbery.
'Just yesterday, we had an estate agent on the phone about another property we'd looked at a few years ago. He asked if we were still interested and we said, 'Why would we?' We'd find it very difficult because we're having to accumulate cash for the day that my wife and I die.'
'If there was a playbook of how to stop growth, the Government is ticking every box. Why would they understand the mindset of an entrepreneurial family owning a business? None of the Cabinet have ever been in one.
'They're just kicking us in the teeth wherever they can. It's sickening for me.'
Gary Smith, of Evelyn Partners, said: 'It is further punishment for those retirees who have prudently saved into their pensions throughout their lifetime, purchased a commercial property and are using the rental income to maintain their retirement lifestyle.
'It is also indirectly a further attack on business owners, who have already seen an increase in National Insurance contributions, their shares become subject to inheritance tax from April 2026 and now potentially having to raise capital to buy properties back from pension funds at a time of elevated borrowing costs.
'This will have real consequences for the 12,500 to 15,000 small businesses that currently rent properties from pension schemes, and ultimately could result in job losses or business closures.'
A Treasury spokesman said: 'We continue to incentivise pensions savings for their intended purpose – of funding retirement instead of them being openly used as a vehicle to transfer wealth – and more than 90pc of estates each year will continue to pay no inheritance tax after these and other changes.'