Family-Run Construction Firms Pushed to Brink by Inheritance Tax Reforms
Family-operated construction plant-hire businesses are facing severe financial strain from recent inheritance tax changes, with industry experts warning that these reforms could undermine the government's ambitious housebuilding goals. According to the Construction Plant-hire Association (CPA), these firms are being forced to scale back operations and investment, pushing many toward insolvency.
Investment Cuts Threaten Housing Targets
The CPA, representing over 2,000 members, reports that approximately 60 percent of its members are reducing investments in equipment and machinery due to the inheritance tax reforms. Additionally, one-third of these firms are cutting back on hiring new staff. These cutbacks come at a critical time when the government has pledged to build 1.5 million homes by the next general election.
Steven Mulholland, chief executive of the CPA, emphasized the contradiction in government policy. "Ministers want growth, they want 1.5 million homes, and they want to accelerate infrastructure delivery," he told City AM. "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."
How Inheritance Tax Changes Impact Construction
The inheritance tax reforms, set to take effect on 6 April, impose a 20 percent effective tax rate on inheritances exceeding a £2.5 million threshold. This threshold was increased from an initial £1 million following significant industry pushback, but construction suppliers argue they remain disproportionately affected.
Plant-hire firms, which provide essential machinery and services to construction projects, typically hold their value in equipment rather than cash reserves. This makes them particularly vulnerable to the new tax structure. Many family-run businesses are now reducing investments to avoid substantial tax liabilities when passing their operations to the next generation.
"Plant-hire businesses supply the kit and machinery every construction project relies on," Mulholland explained. "Put simply, without construction plant, nothing gets built."
Broader Industry Challenges Compound the Crisis
The inheritance tax issue coincides with other significant challenges facing the construction sector. The Office for Budget Responsibility (OBR) projects that net additions to the UK's housing stock will decline from an average of 260,000 annually to just 220,000 in 2026-27. Furthermore, the OBR suggests that Labour's proposed cuts to planning red tape will not meaningfully boost housebuilding until 2030.
International tensions are adding additional pressure. The Builders Merchants Federation (BMF) reports that the blockage of the Strait of Hormuz due to the Iran war has increased shipping costs for construction materials by 20 to 100 percent. John Newcomb, BMF's chief executive, described the situation as a "major 'cost of doing business' crisis" with no immediate recovery in sight.
Government Response and Industry Outlook
A government spokesperson defended the policy adjustments, stating: "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."
The spokesperson also pointed to positive indicators, noting a 24 percent increase in new housing starts compared to the same quarter last year. However, industry leaders remain skeptical about whether these gains can be sustained given the current challenges facing family-run construction firms.
As the inheritance tax changes approach implementation, the construction sector faces a critical juncture. The survival of family-run plant-hire businesses and the achievement of national housing targets may depend on whether policymakers can balance fiscal objectives with the practical needs of this capital-intensive industry.
