More than one-in-five family-owned manufacturers consider selling to foreign buyers over inheritance tax fears

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Almost eight in 10 said they were concerned about the impact of inheritance tax

More than one-in-five family-owned manufacturers are considering selling up to an overseas buyer because of inheritance tax fears, a report warns.

Family-owned firms form "the backbone of UK manufacturing", says trade body, Make UK, but they are struggling with tax pressures, high energy costs and skills shortages.

High energy prices are the highest barrier to growth, said 59 per cent, followed by taxation, which was cited by 47 per cent of the 127 businesses asked.

But almost eight in 10 family-owned manufacturers said they were concerned about the impact of inheritance tax changes on succession planning.

Currently, eligible businesses can receive 100 per cent relief on inheritance tax. But, from April, just the first £2.5million is exempt.

Assets above that receive a reduced relief rate of 50 per cent, meaning a de facto tax rate of 20 per cent.

As a result of these changes, more than one in five family-owned manufacturers are considering selling to an overseas buyer, the report finds.

A further 18 per cent are considering a UK-based sale. Fhaheen Khan, Senior Economist at Make UK, said: "Inheritance tax changes are causing real concern for family-owned firms, and if policy pushes owners to restructure, delay investment or sell overseas to reduce tax bills, the UK risks losing valuable domestic capability at the very moment it is trying to rebuild it."

Neil Davy, CEO of Family Business UK, said: "Manufacturing is a sector built on long-term thinking.

"Family-owned manufacturers invest across generations, not electoral cycles, and their contribution to Britain's economic resilience, industrial capability and regional prosperity cannot be easily replaced.

"The finding that some business owners are considering selling, including to overseas buyers, should give policymakers pause for thought.

"At a time when the Government is rightly focused on economic growth, reindustrialisation and strengthening UK supply chains, we should be creating the conditions for family businesses to invest and pass ownership successfully to the next generation, not making that transition harder."

The report, carried out with accountancy advisory firm, Bishop Fleming, said government ambitions to reindustrialise the UK would be held back unless these collective pressures were addressed.

Left unchecked they could "push owners to delay investment, restructure ownership or consider a sale because of tax liabilities rather than long-term business needs".

Make UK called on the government to review recent inheritance tax changes, with 42% of manufacturers saying they want them reversed.

It said tax policy "must not discourage long-term investment or create barriers to succession".

It also called for action to reduce industrial energy costs, a review of employer National Insurance Contributions and apprenticeship funding reform, along with stronger investment incentives.

Mr Khan said: “Family-owned manufacturers are not a niche part of the economy.

"They anchor skilled jobs, long-term investment and the industrial know-how Britain needs to make reindustrialisation a reality, something the Prime Minister is right to put back at the centre of the economic debate.

“But ambition must now be matched by action on the barriers holding firms back, from the highest industrial energy prices in the G7 to rising tax pressures and skills shortages.

“Reducing energy costs, reviewing inheritance tax changes, strengthening apprenticeship funding and turning the Industrial Strategy into practical support on the ground are now essential if Britain is serious about securing the future of its manufacturing base.”

Dan Phillips, Head of Manufacturing at Bishop Fleming, said: "Succession planning is no longer simply a tax discussion.

"Business owners are thinking longer term about future leadership, attracting talent, protecting jobs and ensuring the businesses they have spent decades building remain successful for generations to come.

“The manufacturers we spoke to continue to invest in people, digital capability and operational resilience despite significant economic uncertainty.

"The challenge is ensuring those businesses have the confidence and flexibility to continue making those long-term decisions.”