Planning to pass the business to your children? A Budget report suggests one common way of doing it could become much more expensive. According to the Telegraph, the Chancellor is considering charging income tax, rather than capital gains tax, on some family business handovers. The Treasury has not confirmed it.
01What's reported
The Telegraph reported the plan on 18 October, ahead of the Budget on 28 October. It concerns one method families often use.
Instead of selling the business outright, the parents convert their shares into redeemable shares. The company then buys those shares back from its own profits.
That payment is currently taxed as a capital gain. According to the reports, that means 24% for a higher-rate taxpayer. Taxed as income, it could be up to 45%.
A Treasury spokesperson said decisions on tax are set out at fiscal events. The Treasury does not comment on "rumour, speculation or proposals".
The report follows an HMRC consultation on the tax rules for company distributions. It ran from 23 June to 14 September 2026, and HMRC is still analysing the responses.
02The route advisers point to
Advisers say other routes would stay open. According to Chris Etherinton, a tax partner at RSM UK, one option is a sale structured like a management buyout.
In that case, family members set up a new company. The new company then buys the shares of the parent who is leaving.
03How a family buyout is usually funded
A family buyout is a business purchase, and it is usually funded like one. The money often comes from the buyer's deposit, an acquisition loan and part of the price paid to the parents later.
A lender will want a fair price, a business plan and a clear view of who runs the business next. Our guide explains how a family buyout is funded, step by step. An acquisition finance broker can then help you compare the options.
04What isn't known yet
Nothing has been announced. The details of any change, and when it would start, are not known.
Advisers are urging owners not to rush a decision before 28 October. If you are planning a handover, talk to a tax adviser first and then plan the funding.
