As we look ahead to 2025, family businesses find themselves at a crucial juncture, balancing tradition with innovation in a rapidly changing economic landscape. In addition, the recent announcements in the Autumn Budget around Inheritance Tax and National Insurance will have a significant impact on all types of family business.

Changes announced in the Autumn Budget

The announcement that Employer’s National Insurance Contributions would increase by a further 1.2% to 15% from 6 April 2025 is a serious additional cost that businesses require to fund. In addition, the threshold at which Employer contributions kick in has been reduced from £9,100 to £5,000. 

The Chancellor sought to alleviate the burden of the additional NIC increase on smaller businesses by increasing the Employment Allowance by up to £5,000 more from April 2025.

The most significant change in the Budget came from the changes to Inheritance Tax. Whilst much of the noise to date around the changes has arisen from the Rural sector, these changes are much wider than Rural and impact on all family businesses across the UK.

From 6 April 2026 the current generous Inheritance Tax reliefs, known as Agricultural and Business Property Relief, will be reduced significantly. Going forward up to £1m of combined value in your business will be relieved from Inheritance Tax in total. Value in your business in excess of this amount will only bank 50% relief and so effectively suffer a 20% Inheritance Tax rate on death, versus what was previously a 0% rate for most family businesses.

In addition, pensions will also be brought into Inheritance Tax on death from 6 April 2027.

In terms of both these significant Inheritance Tax changes much is still unknown as to all the workings. For example, there is currently a pensions consultation underway and we also await a Trust consultation in early Spring 2025. Once the output of these is known then there will hopefully be a clearer way forward for clients to plan for upcoming changes.

Succession planning

The transition of leadership from one generation to the next presents both challenges and opportunities for family businesses. As founders or directors approach retirement age, effective succession planning is vital to ensuring the business can continue to thrive. Family businesses should proactively engage younger family members in business operations and decision-making processes as early as possible. As well as ensuring smoother continuity, this also provides businesses with an opportunity to introduce fresh ideas and approaches; innovation which can help businesses stay ahead of the curve in competitive markets.

The announcement of recent changes to the Inheritance Tax rules, does mean family businesses need to think much sooner about their succession plans. Life cover is likely to also play a key role going forward to protect against unexpected death, and there may be an opportunity to still contribute significant wealth into a Trust prior to 6 April 2026 as a means of protecting the family business against fragmentation/loss of control issues.

More will be known come Spring 2025 and post the Trust consultation. In the meantime, it makes sense to undertake work around valuing your current asset base to determine your likely level of Inheritance Tax exposure. Please do speak with your JC contact to discuss next steps.

Embracing digital

Digital transformation will remain a significant focus for family businesses moving forward. The acceleration of online shopping and remote working, not to mention the ongoing digitisation of organisations like HMRC, has pushed many family businesses to enhance their digital capabilities. Investing in cloud accounting systems, e-commerce, digital marketing, and data analytics will not only improve operational efficiency but also help these businesses better understand and meet customer needs. Prioritising digital strategies can often provide a competitive advantage, allowing businesses to react faster to changing market demands and consumer behaviours. If you’re not sure where to get started on going digital, or you’re not sure where to go with it next, our specialist Digital Transformation team supports businesses at all stages of their digital journey.

Sustainability and ethical practices

Sustainability is increasingly becoming an essential expectation from consumers and stakeholders. Many family businesses are already leaning towards sustainable sourcing, green technologies, and corporate social responsibility initiatives. This commitment not only helps the environment but also has a positive impact on a business’s brand and reputation, so there is much to be gained and family businesses should ensure they are taking these considerations into account for their planning.

Navigating regulatory changes

There is no doubt that 2025 will see global and local markets continue to evolve, and with them, regulatory changes that can impact business operations, such as environmental regulations, data protection laws, and labour requirements. Amidst the workload and pressures of the day-to-day running of a family business, it’s critical for business owners to stay on top of relevant regulations and remain proactive in adapting to any changes.

Seizing opportunities

While the months ahead will bring challenges, family businesses can stay ahead of these by being proactive and seizing opportunities where these are presented. By embracing digital transformation, committing to sustainability, and planning early for succession, businesses can navigate changes with confidence and continue to play the pivotal role they hold in our economy.

A strength of family businesses lies in their resilience, community ties, and collaborative spirit. Building robust networks can lead to shared resources, expansion of knowledge and best practice exchange in the areas we have discussed above, so collaboration is key - with peers, and, of course, with your trusted advisers at Johnston Carmichael. We are on hand to help you build your business’s success story. For more information on any of the topics discussed in this blog, or any other queries you might have, please don’t hesitate to get in touch with Scott Dunbar, Alex Docherty, Nicola Horsburgh or Aileen Scott.