Family-run construction firms pushed ‘to brink’ by inheritance tax

Family-run construction firms are being pushed to the brink of insolvency by reforms to inheritance tax which undermine Labour’s housebuilding target, a trade body has warned.

Plant-hire firms – which provide machinery and services to the construction sector – are almost always family run and are being forced to scale back by inheritance tax changes, according to the Construction Plant-hire Association (CPA).

The government has pledged to build 1.5m homes by the next general election but housebuilders have said this target is unlikely to be met unless the construction industry sees significant recovery.

Six in 10 of the CPA’s more than 2,000 members are already cutting back on investment in equipment and machinery as a result of the inheritance reforms, with a third cutting back on hiring, the trade body told City AM.

The changes to inheritance tax – which will come into force on 6 April – mean any inheritance above a £2.5m threshold will face an effective tax rate of 20 per cent.

The threshold was raised to £2.5m from an initial £1m for firms claiming agricultural and business property relief after significant pushback.

Labour housebuilding target at risk

Construction suppliers claim they will be disproportionately affected by these changes because their value often sits in equipment and machinery rather than in cash reserves.

Plant-hire firms say they are cutting back on investment to avoid facing significant tax bills when their business is passed down to their children.

The industry is the UK’s most capital intensive, with an investment ratio more than double the next-closest, according to the CPA.

Steven Mulholland, the CPA’s chief executive, called on the government to reverse its inheritance tax plans and said its housebuilding target is at risk if the firms underpinning construction are forced to cut back on investment.

He told City AM: “Ministers want growth, they want 1.5 million homes, and they want to accelerate infrastructure delivery. 

“But at the same time, they are rolling out a policy that is pushing family-run firms to the brink and forcing them to scale back the investment those ambitions depend on.

“Plant-hire businesses supply the kit and machinery every construction project relies on – put simply, without construction plant, nothing gets built.”

‘Cost of doing business crisis’ for construction firms

The Office for Budget Responsibility (OBR), the fiscal watchdog, has said net additions to the UK’s housing stock will fall from a 260,000 yearly average to a low point of 220,000 in 2026-27.

Labour’s cuts to planning red tape will not “meaningfully” boost housebuilding until 2030 – the year after the expected date of the next election, Labour’s deadline for the pledge – the OBR said. 

Small construction firms have warned they are particularly vulnerable to rising energy costs as a result of the Iran war, with a trade body saying this will add further strain to their productivity.

The blockage of the Strait of Hormuz, a crucial shipping passage near Iran, has caused shipping costs for construction goods to increase by anywhere between 20 and 100 per cent, according to the Builders Merchants Federation (BMF).

John Newcomb, the BMF’s chief executive, said: “We are facing a major ‘cost of doing business’ crisis, and there are no green shoots of recovery on the horizon.

“We are not seeing [the] government’s target of 1.5 million new homes being built, and that’s really bad news for the economy.”

A government spokesperson said: “We’ve listened and raised the relief threshold to £2.5 million to protect more small family businesses, while ensuring the largest make a fair contribution so we can deliver support for families and businesses, including cutting the cost of living.

“To restore the dream of homeownership we will build 1.5 million homes, and we’re already seeing green shoots with a 24% increase in new housing starts compared to the same quarter last year.”