Family business: Economic changes & communication

The family business: Navigating economic changes and effective communication.

The upcoming festive break provides a unique time for many families, across the UK, to gather, celebrate and reflect. For those at the helm of family businesses, these gatherings often serve as pivotal moments for kitchen table “board meetings” to discuss the future of the family firm.

Family businesses are an integral part of the UK economy, contributing significantly to employment and innovation. Over the past month, many of these businesses will have been discussing strategic planning as a result of the Labour Government’s recent fiscal policy changes.

The economic significance of family businesses

Family-owned businesses constitute approximately 90% of all UK’s businesses and produce 30% of GDP. They also employ over 14 million individuals. Their resilience and adaptability have long been pillars of economic stability.

Yet, the unique interplay between familial relationships and business operations can present challenges, particularly in the realms of open communication on succession planning and effective conflict resolution.

Recent budget changes impacting family businesses

In addition to the much-publicised changes for family businesses in the agricultural sector, the UK’s recent budget introduced several measures that have a direct impact on family businesses. These are likely to come up in conversation as those family members sit down together over the coming weeks:

Rising employee liabilities: This has been a hot topic since the budget was announced at the end of October. By way of reminder, effective from April 2025, the rate of employer NI contributions will increase from 13.8% to 15%, and the threshold at which employers start to pay NI will decrease from £9,100 to £5,000 per annum. This is coupled with a rise in the National Living Wage for individuals aged 21 and over from £11.44 to £12.21 per hour (effective from April 2025).

These changes will elevate employment costs for family businesses, potentially affecting hiring decisions and wage structures. Family business owners will already be reassessing their staffing models and clear communication will be needed to explore efficiencies that could mitigate the increased expenses.

Inheritance Tax (IHT) Reforms: The recent budget also introduced a cap on BPR at £1 million, impacting family firms that would incur inheritance tax by passing down businesses valued over this amount. It has been mooted that this policy could lead to a 16.5% average reduction in investment and 10.2% cuts in staff, ultimately risking over 125,000 jobs by 2030 and reducing the economy’s GDP by £9.4 billion.

Contrary to the aims behind BPR, the change will increase the risk of businesses leaving family ownership or being liquidated upon the death of senior family members, in order to fund the IHT costs.

There are now under 18 months to put plans in place to del with this issue and family businesses owners may want, amongst other things, to consider transfers that might be made prior to April 2026 in order to take advantage of the current relief.

The crucial role of communication

In light of these developments, effective communication within family businesses is paramount. Transparent discussions about financial strategies, succession plans, and operational adjustments are essential to navigate the evolving economic landscape.

Firms like Morr & Co play a vital role in facilitating communication and strategic planning within family businesses:

Facilitating Succession Planning

Solicitors can assist structured dialogue to ensure perspectives are considered about how the business will be secured and operated for future generations, fostering consensus on succession.

Legal Documentation

In addition to comprehensive wills and trusts, we can help with shareholder agreements and other ownership arrangements to formalise succession plans and minimise disputes.

Tax Planning

IHT Mitigation Strategies: Supported by our private client team, we can provide guidance on tax-efficient structures to reduce IHT liabilities and deploy family investment company estate planning tools in relation to the wealth generated by family businesses.

Navigating Reliefs: We can assist in understanding and applying available reliefs, ensuring compliance with the latest regulations.

Enhancing Operational Communication

Governance Frameworks: We can assist with establishing clear governance structures, including family councils and regular meetings, to facilitate ongoing communication.

Conflict Resolution Mechanisms: We can advise on implementing processes to address and resolve disputes amicably, preserving both business integrity and family harmony.

Assisting with Business Sales

Preparation and Valuation: Our team is experienced in guiding businesses through initial negotiations and heads of terms through to preparing necessary documentation for potential sales.

Negotiation and Compliance: We can ensure that sales agreements are negotiated effectively and comply with legal requirements, safeguarding the family’s interests.

Conclusion

The festive season offers a unique opportunity for family businesses to convene and deliberate on their future. Not just business owners but familial employees and their dependents will meet, meaning that a mixed group of stakeholders are brought together.

Proactive communication on the right topics, followed by strategic legal guidance in the New Year, is essential to adapt to recent fiscal changes and ensure the enduring success of the family enterprise.

Engaging with experienced advisors can provide the necessary support to navigate these complexities, fostering both business prosperity and family unity.

How can Morr & Co help?

If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Corporate & Commercial team on 01737 854500 or email info@morrlaw.com and a member of our expert team will get back to you.

Disclaimer
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.