Construction figures are warning of a “severe and long-lasting impact” from proposed inheritance tax reforms, which are causing a “groundswell of anger” among family-run businesses in the sector.
The Home Builders Federation and Builders Merchant Federation are among 32 trade associations that have signed an open letter to chancellor Rachel Reeves warning about the negative impact of the proposals.
In the letter, Family Business UK (FBUK) chief executive Neil Davy called for a formal consultation on plans to make family businesses pay inheritance tax for the first time since 1976.
In the letter, Davy argued that Reeves’ proposals would have a “severe and long-lasting impact on [family businesses] and the livelihoods of the millions of people they employ”, forcing businesses to close prematurely and risking jobs across the country.
Reeves announced in October’s Budget that, starting from April 2026, Business Property Relief (BPR) on inheritance tax will be reduced from 100 per cent to 50 per cent after the first £1m of property.
This means family-run businesses will be subject to 20 per cent inheritance tax on assets above £1m.
According to the government’s own figures, 81 per cent of construction SMEs are family-run.
Davy cited FBUK-commissioned modelling by CBI Economics, which predicts the changes to BPR will result in more than 125,000 job losses across the economy and reduce economic activity by £9.4bn.
He wrote: “No other model of business ownership is subject to these punitive taxes when a business transitions ownership. BPR therefore allows family businesses to compete fairly with PLCs, private equity, and other models of businesses ownership.”
A formal consultation on the changes would allow consideration of alternative proposals which could “stimulate the economic growth the country desperate needs”, Davy wrote.
The letter’s signatories include Home Builders Federation chief executive Neil Jefferson; Builders Merchant Federation chief executive John Newcomb; Construction Plant-hire Association chief executive Steve Mulholland and Electrical Contractors’ Association group chief executive Steve Bratt.
Wates director James Wates and NG Bailey non-executive director Chris Bailey both sit on the FBUK board of directors, alongside Thomas Martin, chair of workwear business Arco.
Build UK added its support to the open letter in a LinkedIn post on Tuesday (18 December). Chief executive Suzannah Nichol said family-owned construction business are “vital to delivering the essential economic, social and housing infrastructure that the country needs and which are at the heart of the government’s agenda”.
She added: “They are also crucial to ensuring the capacity is there to ‘Get Britain Building’, but in order to do that they need the confidence to invest in future generations and the existing workforce, which benefits so many local communities.”
Earlier this month, Builders Merchants Federation (BMF) chief executive John Newcomb warned that the measures announced in the Autumn Budget could force leading merchants to cut their staff numbers and limit investment plans.
Chris Hayward, chief executive of NMBS, the UK’s buying society for independent merchants, said: “We have experienced a huge groundswell of anger over this.
“Small family businesses are the lifeblood of this country, and generations of stability is being put at risk.”
Hayward said the move on inheritance tax could force firms to sell assets, downsize or liquidate entirely to meet tax obligations.
Other impacts could include disruption to succession planning, disincentives to investment, job cuts and reduced innovation, all impacting on the government’s housebuilding target, according to Hayward.
He said: “We have thousands of members who provide a crucial service for the construction industry generally, and there will be a ripple effect if businesses start to close. Labour must rethink its ill-guided decision.
“I’m not talking about politics, but about the responsibilities of being in government and understanding that policies have impact on small businesses.”
Professor Noble Francis, economics director at the Construction Products Association, said: “The key issue is where the next generation is going to find the cash to take on the family business.
“If they have to set aside money for inheritance tax, that’s money they can no longer spend on the business, harming its viability.
“This just adds to extra costs around the employers’ national insurance contributions and national living wage rises.”
The boss of Britain’s biggest builders’ merchant site – showcased by Keir Starmer during a pre-election visit – has joined the chorus of protests over Labour’s inheritance tax changes.
David Berry, managing director of C and W Berry Ltd, based in Leyland, Lancashire, said: “The inheritance tax change is a huge burden on family businesses.
“This is a new government and hopefully it will have the strength to listen and recognise it may have misjudged the full consequences of its decision.”
In an interview with Construction News earlier this month, CPA chief executive Steven Mulholland called the changes to inheritance tax – coupled with increased employers’ National Insurance contributions – “very, very narrow-minded”.
