Approximately 5.3m family firms operate across the UK, employing 14.2m people and contributing over £630bn to the country’s gross domestic product (GDP) annually.
These businesses form the backbone of British commerce, from high-street retailers to major manufacturing companies.
Growing a family business creates challenges that other companies rarely face.
The personal relationships and informal systems that work well when you’re a small business can become obstacles as you expand. Professional management processes may feel at odds with family-style decision-making.
The most successful family businesses find ways to modernise while preserving what makes them distinctive. They grow without compromising the values and relationships that built their success.
Succession planning in the new tax environment
The October 2024 Budget marked a major, controversial change to family-business succession planning. From April 2026, business property relief will be capped at £1m per person, with 50% relief applying to assets above this threshold. This means a £2m family business could face a £200,000 inheritance tax bill instead of zero.
This comes at a time when two-thirds of family business owners are considering selling because they can’t identify successors within the family. Now they also face substantial tax charges that weren’t expected when they built their businesses.
Key planning steps before April 2026.
- Assess your business value and potential inheritance tax exposure.
- Consider lifetime gifts to use the seven-year exemption rule.
- Review ownership structures to maximise available reliefs.
- Document succession plans that work for both family and tax requirements.
The £1m relief allowance isn’t transferable between spouses, so both partners need individual planning.
Professional advice will be essential to avoid potentially catastrophic tax liabilities.
Digital systems for professional management
Modern family businesses should consider modernising their systems and workflows where applicable.
- Financial management: Cloud accounting software such as Xero and Sage provides real-time visibility into cashflow, profitability and tax obligations.
- Operational efficiency: Automated invoicing, inventory management and customer relationship systems can lighten admin loads on the team.
- Compliance management: Payroll systems automate tax calculations, pension contributions and other legal requirements, eliminating the need for manual intervention or dedicated internal payroll functions.
Start with the biggest pain points. If cashflow visibility is poor, fix accounting systems first. If customer service suffers because information isn’t shared, implement customer management tools. Build systematically rather than trying to digitise everything simultaneously.
Financial boundaries and governance
Financial conversations can quickly create family tension. Should family members earn market salaries? How do you balance reinvestment with family income needs? What happens when some family members work in the business while others don’t?
Clear financial structures prevent problems before they damage relationships.
- Compensation policies: Pay family members market rates for their roles. If you want to provide additional benefits, do so transparently through profit sharing or bonuses, and ensure compliance at every step. HMRC does not take kindly to disguised remuneration within families.
- Expense management: Separate personal and business expenses completely. Document policies about company cars, travel and other benefits that could blur boundaries.
- Governance structures: Regular family meetings address values and long-term vision. Business meetings focus on performance, strategy and operational decisions. Keep these discussions separate but complementary.
- Professional oversight: Independent board members or advisers provide an objective perspective while respecting family values and relationships.
The key is to follow the letter of the law above all. Families do not get special flexibility to run their business and are subject to the same formalities as any other under the Companies Act.
Innovation within family values
Family businesses often stick with what works, which is a strong tactic if that strategy has worked for years. However, there comes a point where market conditions or family ambitions drive the need for new models.
Many families are finding ways to adapt without abandoning successful foundations.
- Selling expertise alongside products: Equipment suppliers adding maintenance contracts, consulting and training services.
- Partnership deals: Working with other businesses to offer complete solutions without hiring more staff.
- Monthly contracts: Turning one-off sales into ongoing relationships that provide predictable revenue.
- Premium services: Manufacturers offering design, installation or support rather than just selling products.
These changes often happen when the next generation joins the business and brings different perspectives about growth and profitability. The challenge is evaluating new opportunities without abandoning what’s already working well.
Planning for the future
Family businesses are pivotal to the British economy, but have always had their nuances with regard to change, innovation and succession.
At Richardsons, we work with family businesses across diverse sectors. We help you develop practical succession plans and business systems that work for your family’s specific situation.
If you need guidance on succession planning, governance structures or systems that support growth, we can help you explore options while preserving what makes your business successful.
Contact us to discuss your specific situation and the steps that make sense for your family business.
