Budget 2025: Key takeaways for family businesses

These are challenging times for business owners and the recent Budget didn’t change that.

There are some fundamental issues that family businesses need to consider in advance of 5 April 2026. Below are the three things that we think should be part of your Christmas menu this season.

Starter - income extraction

• Dividends: From April 2026, the cost of taking dividends as remuneration will rise. Ordinary and higher dividend tax rates will rise by 2% to 10.75% and 35.75% respectively, although surprisingly, the additional rate will remain at 39.35%. In most cases, it is likely that dividends will still be cheaper than bonuses, but this should be assessed on a case-by-case basis.
• Pension contributions: Whilst one of the changes announced means that NIC will be imposed on pension contributions made under employee salary sacrifice arrangements on amounts over £2,000, owner managers will still be able to contribute to their pensions through their business. Levels are still, of course, subject to annual allowance and lifetime limits, but where this is an option, it is still an efficient remuneration strategy. 
• Rental income: Property and income tax rates increase by 2% from April 2027. Directors with property investments will see higher tax liabilities on rental income. Where directors own the trading premises, drawing income from rents is often used as an efficient method of profit extraction. Whilst the tax increase is not likely to change strategy significantly, it will mean that the net benefit is less.
• Interest: Tax on interest will also increase from April 2027. This will affect cash investments, but also interest on loan accounts. Again, whilst still likely to be an efficient method of profit extraction, the benefits will be diminished so it should be reviewed in line with other options. 

It is important to take steps now to make sure your remuneration strategy will continue to work with these changes and to plan the timing of income. Our profit extraction calculator can help you with these decisions. 

Main course - succession planning

• Inheritance Tax: Estate planning is something that is more important now than ever, given the changes to business relief and pension funds. It is important to make sure that you understand as a family what your possible exposure is, how it can be mitigated and where the funds to pay the tax will come from if necessary.
• Trusts: Trusts are still an effective way of protecting assets and mitigating Inheritance Tax. For business owners, there is still a short window of opportunity to make the most of the current rules for business relief and maximise the value of shares that can be settled into trust, but this must be actioned before 5 April 2026. Careful planning is required to establish the optimum shareholder strategy, as giving away too much will affect income streams, entitlement to future sale proceeds and in some cases control of the business. 
• Gifts: Rather than settling assets into a Trust, it may be that you are happy to make direct gifts. Whilst this is not currently time sensitive, it is never too early to start this thought process. This could be around the succession of the family business or family wealth more broadly. Often, the families we work with use a family investment company structure as a way of involving the next generation in the wealth of the family, whilst still retaining control.

Dessert - exit planning

Where succession within the family isn’t an option, then there are a number of exit strategies available, including sale, investment or management buy-out. More recently, an attractive option has been an Employee Ownership Trust (EOT), previously offering a tax-free sale provided all qualifying criteria were met. However, from 26 November 2025, only 50% of the gain on disposal of shares to an EOT is exempt from capital gains tax. The remainder is fully taxable at 24%, with no access to Business Asset Disposal Relief. Although with an effective rate of tax of 12.5%, this is still likely to be the cheapest form of exit from a tax perspective, the restricted relief is likely to reduce the appeal of EOT exits for business owners.

Recap

• Business owners face higher taxes on dividends and property income, affecting personal wealth and investment returns.
• Conversations around succession and family wealth planning should be had now. Even if the decision is to do nothing at least it is a conscious decision.
• Exit planning strategies may change, every option should be considered and tax should never be the main driver. Understanding the value of your business and negotiating price can be equally if not more valuable.

Whilst not the most fun aspect of the family gathering, we know that for the families we work with, the festive season is often one of the only times everyone is together. We know these conversations can be difficult, and our team has a wealth of experience dealing with family businesses. If you would like more information, please do not hesitate to contact your usual Crowe contact.