Business leaders have urged John Healey to reverse his predecessor’s devastating inheritance tax raid on family firms.

In a letter to the Chancellor ahead of his first Budget, organisations representing more than 200,000 companies branded the decision to hit enterprises with death duties ‘the most damaging measure yet for private and family-owned firms’.

And they warned Rachel Reeves’ assault on the sector is ‘undermining investment, jobs and the long-term future of some of Britain’s most important companies’ – leaving them vulnerable to foreign takeovers.

Reeves sparked outrage in the 2024 Budget when she announced changes to so-called business property relief (BPR) and agricultural property relief (APR).

The move left family firms and farms facing potentially devastating inheritance tax bills of 20 per cent on assets worth over £1million from April 2026.

The tax raid provoked a fierce backlash with farmers driving tractors through central London in protest and campaigners warning over 200,000 jobs were risk.

In an embarrassing U-turn just before Christmas last year, the Chancellor backtracked, raising the threshold from £1million to £2.5million, or £5million for married couples.

But this still leaves farmers and businesses facing inheritance tax bills - with Healey now under pressure to reverse the tax raid altogether.

Neil Davy, chief executive of Family Business UK, which organised the letter to Healey, said: ‘The Chancellor has a choice in his first Budget: make it harder for British family businesses to invest, employ and pass their businesses on to the next generation by sticking with his predecessor's reforms, or give them the confidence to get on with building the economy.

‘Family firms are employers, investors and anchors in communities across the country. When you put a tax charge on the business itself at the point of succession, you risk forcing owners to do the very thing the Government says it wants to avoid - sell assets, cut investment and jobs or put the future of the business in someone else’s hands.

‘The Government has already recognised that the original policy needed to be softened, but thousands of ordinary businesses will still be dragged into the death tax net. A family-owned business should not face a tax penalty simply because it has been built patiently and passed from one generation to the next.’

He added: ‘The next Budget is an opportunity to reset the relationship between Government and family businesses. Reversing these changes would send a powerful message that Britain wants businesses to stay here, invest here and grow here - not become forced-sale opportunities for overseas buyers.’

The signatories, who also included UK Hospitality, the Country Land and Business Association and Build UK, said Reeves’ changes ‘have created a significant tax penalty for family ownership that does not apply in the same way to businesses owned by other structures or overseas investors’.

They added: ‘This will create difficult choices for business-owning families: find cash to meet a tax bill, reduce investment or jobs, sell part of the business or, in some cases, sell the entire company.’

Family businesses make up over 90 per cent of firms in the UK and employ 57 per cent of the total workforce. Almost four in five are based outside London and the South-East – underlining the importance of the sector if Andy Burnham is to meet his pledge of creating ‘good growth in every postcode’.

Country Land and Business Association president Gavin Lane said: ‘The new Chancellor has a golden opportunity to reset the Government’s relationship with rural and family businesses by fully reversing the inheritance tax changes at his first Budget.

‘He should use this Budget to draw a line under the uncertainty that has gripped businesses for the last two years, which the increase in the threshold did little to alleviate. The CLA has continued to ask for a full reversal of this policy to send a clear signal that the Government is listening – and is backing them to invest and grow in long-term critical infrastructure for their businesses and the wider economy.’

Road Haulage Association managing director Richard Smith, who also signed the letter, said: ‘Family-owned businesses are the backbone of the road transport industry and the communities it serves.

‘Many of our members have invested over generations in their people, vehicles and local economies, often while operating on extremely tight margins. Changes to inheritance tax reliefs risk diverting capital away from investment, recruitment and succession planning - and, in some cases, could force viable businesses to be broken up or sold.

‘That would weaken the very firms we need to deliver growth across every region and nation of the UK. The Government should listen to the evidence, reconsider these changes and work with trade associations to create a tax environment that supports long-term British ownership, investment and growth.’

Another signatory, Builders Merchants Federation chief John Newcomb, said: ‘The Government has placed housebuilding at the centre of its growth plans, which requires a strong and stable building materials supply chain. This will be put at risk if the companies manufacturing and supplying these materials struggle to justify investment.

‘We are already seeing investment decisions delayed among the many family-owned businesses in our membership who will be affected by any change to inheritance tax relief.’

And Karen Dear, chief executive of the Craft Bakers Association, said: ‘Family businesses are at the heart of the craft baking sector, often built over generations and deeply rooted in the communities they serve.

‘Changes to inheritance tax reliefs risk penalising those businesses for their long-term commitment, making succession more difficult and potentially diverting vital investment away from jobs, skills and future growth. We urge the Government to reconsider these changes and create a tax environment that supports, rather than undermines, the next generation of British family businesses.’