A reported tax change affecting how family firms pass ownership to relatives has become a new point of dispute ahead of the Budget, with critics warning it could substantially raise the cost of keeping businesses in the family.

The reports concern “redeemable shares”, a mechanism through which a retiring owner can convert holdings that are then bought back by the company. Under the current treatment described in the reports, proceeds can be subject to capital gains tax, with a top rate of 24%. The proposed alternative would treat them as income, potentially applying a top rate of 45%.¹

On that basis, a £1 million business transferred through the arrangement could face tax of up to £450,000 rather than £240,000, according to the reports. Critics say the difference could make an open-market sale more attractive than a transfer to children or other relatives, even where owners want the firm to remain family-run.²

Shadow Chancellor Andrew Griffith framed the issue as part of wider pressure on smaller firms, saying the government was “punishing the people who take risks, create jobs and build businesses for future generations.”¹ He argued that family companies support jobs and local communities, and said a system that made them easier to sell than to pass on “cannot be right.”¹

The same reporting notes that family businesses have already raised concerns about inheritance-tax relief changes, higher employment costs and regulatory burdens. KPMG was cited as having “significant concerns” about the potential impact on family businesses.²

The Treasury, however, has not endorsed the reported plan. A spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”¹ The contrast is therefore between critics treating the change as a looming hit to succession and officials declining to comment on measures before a fiscal announcement.