Budget 2026: Will family businesses get help to grow or just another tax squeeze?

John Healey’s first Budget on 28 October is now being trailed as being focused on easing “the cost of living and the cost of business”. The language is interesting given that the Chancellor has promised fiscal discipline and stability but he desperately needs growth. He may try to combine higher taxes on family business owners with a genuine desire to reduce red tape but what he seems to want is positive headline announcements.

We are still in an era of “boosterism”, with echoes of earlier periods when bold promises of growth and renewal ran ahead of economic reality. All of this means that it is likely that the Budget announcements will affect family businesses.

The government has ruled out increases in the main rates of income tax, employee National Insurance and VAT. Corporation tax is also meant to remain capped at 25%. Those commitments narrow the obvious choices. They do not remove the scope for raising money by changing reliefs, tax bases and the timing or character of receipts.

More tax on retirement and succession from family companies?

HMRC’s recent consultation on company distributions and repayments of capital considers whether some capital transactions by individual shareholders should be taxed as income rather than capital. It covers holding company insertions, capital reductions, purchases of own shares, demergers, transactions in securities and loans to participators. The consultation closed on 14 September and was presumably timed to facilitate an Autumn Budget announcement. The Chancellor may change but the process and policy choices do not.

A Budget announcement could set the direction of travel, perhaps by publishing a further roadmap. It could go further and announce specific measures, especially if they are expected to raise material amounts of tax. While these measures could increase the tax burden on family businesses, any announcement is likely to be presented as targeting tax avoidance.

The most significant proposal would effectively freeze the capital available for repayment after a share exchange at the amount originally subscribed. That could restrict established reconstructions used for genuine commercial separation and family succession.

The Association of Taxation Technicians (ATT) has warned that the package could increase complexity and create unintended barriers to entrepreneurship, succession planning and employee ownership. It has called for stronger evidence, further consultation and protection for legitimate owner-managed and family business transactions. The Institute of Chartered Accountants in England and Wales (ICAEW) has also highlighted the wide effect on restructuring, share purchases and participator loans.

The Chartered Institute of Taxation (CIOT) goes further. It says the consultation starts from an anti-avoidance mindset rather than commercial reality and questions whether HMRC has shown that the existing transactions in securities rules are failing. It warns that curbing capital reduction demergers and imposing five-year restrictions could obstruct genuine sales, group simplifications and succession. Family businesses cannot always plan five years ahead. Illness, shareholder disputes and the need for outside investment can change matters quickly.

There is a fair policy question where a shareholder retains the same economic interest but extracts accumulated profits at capital gains tax (CGT) rates. However, this area has been substantially reformed every 10 to 15 years. Our clients are often responding to political change rather than trying to exploit the tax rules. The danger is that mechanical rules damage entrepreneurial incentives and discourage growth.

The government wants to be seen as cutting red tape

A corporate reporting consultation was published on 7 September and does not close until after the Budget. For family businesses, the important proposals within it are higher exemption thresholds which could take more companies out of audit, a possible extended exemption from preparing consolidated group accounts and simpler UK GAAP requirements with fewer disclosures in financial statements. The consultation also proposes replacing the distributable profits and capital maintenance rules with a solvency-based test.

The government suggests its wider corporate reporting programme could save businesses more than £450 million a year. The government has committed under its “Modern Industrial Strategy” to reduce administrative burdens by 25%, however that is measured and John Healey has personally committed to this. For most family businesses, the real pressures are employment costs and regulation, energy costs and political uncertainty over trade. Fewer financial statement disclosures would be welcome, but financial reporting is not a major constraint on investment and growth.

While the intentions may be good, it is not clear that these proposals would reduce administrative burdens, certainly in the short term. Funders of businesses probably have a very different view and they must be integral to any growth aspirations. The risk is rapid and ill thought through change which does not address the real burdens facing businesses.

What does this mean for family businesses?

We are already identifying the family businesses, structures and planned transactions most likely to be affected. We are also considering how the possible tax changes interact with the accounting and reporting proposals. When the Budget is announced, we will be ready to explain the practical effect, identify any immediate risks and opportunities and help clients decide what action is needed.

Want to know more? Read : What tax changes might John Healey introduce in his Budget on 28 October?