Tax tips for Family Businesses
Family Businesses
Find out how family businesses can reduce their tax burden with some practical forward thinking
Owners and managers of family-owned businesses rightfully spend the vast majority of their time ensuring that the business runs well and generates profits. In the midst of such a demanding task, it can be easy to overlook some tax considerations that can potentially be significant.
The topic of tax in the context of family-owned businesses is a large one – however, there are a few key considerations to bear in mind:
Sections
- How is your business set up?
- How are you extracting funds?
- What’s New?
- How are you incentivising your staff?
- Are you thinking of an exit?
- Planning with pensions
- What about the next generation?
How is your business set up?
Most family-owned businesses are set up as companies, but some do run as partnerships. These two structures differ in terms of tax, and it is worthwhile for business owners to consider which structure could be most beneficial for their business.
Companies may pay lower rates of tax initially, but further tax (including National Insurance Contributions in the case of salary/bonuses) is often due when higher profits are extracted. Partnerships however are tax transparent, so profits are taxed as they arise, even if they are not extracted (but are taxed only once). It is generally easier to convert a partnership into a company than the other way around.
How are you extracting funds?
The business has a choice, broadly speaking, of paying dividends or paying salary/ bonuses. However, recent legislation has attempted to narrow the tax difference between companies and sole trader/partnerships.
Dividends
The Finance Bill 2016, published on 24 March 2016, contains the new rules for dividends.
Summary:
- From 6 April 2016, the notional 10% tax credit on dividends will be abolished
- A £5,000 tax free dividend allowance will be introduced
- Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)
- Dividends received by pensions and ISAs will be unaffected
- Dividend income will be treated as the top band of income
- Individuals who are basic rate payers who receive dividends of more than £5,001 will need to complete self assessment returns from 6 April 2016
- The change is expected to have little impact upon non-UK residents
Impact
The proposed changes raise revenue despite the so-called “triple lock” on income tax. Perhaps aimed to tax small companies who pay a small salary designed to preserve entitlement to the State Pension, followed by a much larger dividend payment in order to reduce National Insurance costs. It appears that the government is anti-small companies, preferring workers to be self-employed.
These changes will affect anyone in receipt of dividends: most taxpayers will be paying tax at an extra 7.5% p.a. Although the first £5,000 of any dividend is tax free, in 2016/17:
- Upper rate taxpayers will pay tax at 38.1% instead of an effective rate of 30.55% in 2015/16
- Higher rate taxpayers will pay tax at 32.5% instead of an effective rate of 25% in 2015/16
- Basic rate taxpayers will pay tax at 7.5% instead of 0% in 2015/16
This measure will have a very harsh effect on those who work with spouses in very small family companies. For example, a couple splitting income of £100,000 p.a. could be over £5,000 p.a. worse off.
Businesses should therefore consider these tax issues when using either of these methods to extract funds.
There can be benefits in various family members being involved in the business, particularly if they, for example, perform smaller roles and are not paying taxes at the higher rates. Care is always required here to ensure that any salaries are commensurate with the job performed.
There can also be complexities in giving away shares to spouses to enable them to capture dividends at the lower rates.
How are you incentivising your staff?
Clearly, the retention of key staff is of critical consideration for businesses of any size. With cash flows being restricted in these difficult times, consideration can usually be given to granting share options to employees. Certain tax-approved options schemes (such as Enterprise Management Incentives) are potentially very tax-efficient and a good incentive for key workers.
Are you thinking of an exit?
It is never too early to contemplate what would happen if the business were sold. The headline rate of capital gains tax is not good as it once was but there are potentially reliefs available which may minimise the tax burden on exit. With the right structuring, valuable relief can potentially be opened up to various family members through tax planning.
Tax Planning with pensions
Pensions are all the rage now, given the recent changes.
In certain instances, an appropriate pension plan for a family-owned business can lead to substantial tax efficiencies. Also the use of SIPPs and SASSs can be used a valuable tax planning tool to extract funds from otherwise taxable business profits.
What about the next generation?
Succession planning is a key strategic matter for any family-owned business. Where the business is a trading concern, it is often possible (depending on the particular circumstances) to give away shares without adverse tax consequences.
But care is required here to avoid certain pitfalls that can exist if even a few investment assets are located somewhere within the business.
It may also be the case that a trading business qualifies for inheritance tax relief (under the business property relief regime); therefore, founders may not be worried about inheritance tax now. If the business is sold however, this relief will be lost, potentially generating a significant inheritance tax bill in the future. Fortunately, planning options do exist here, such as transferring the business into a trust before an exit.
Needless to say, the above gives only a taste of some of the relevant tax considerations where family-owned businesses are concerned. The important point is to remember the significant impact that tax can make, and to take advice early and regularly.
Latest news & blogs…
Incorporating your Property Portfolio for Tax Planning
IN THE PAST decade, the UK property market has quietly undergone a structural revolution. What began as a tax-driven shift among higher-rate landlords has now become a mainstream trend — with over 70% of new buy-to-lets purchased through companies, and a growing number of investors treating their portfolios as businesses rather than side investments.
The reasons are clear. Frozen tax thresholds, rising mortgage rates, and the unpopular Section 24 restriction on mortgage interest relief have all squeezed traditional landlords, while larger and more professional investors — including overseas buyers and family offices — have quietly moved towards corporate ownership. This allows for lower tax rates, full deductibility of finance costs, and greater flexibility in reinvestment and succession planning.
At the same time, institutional capital continues to pour into the UK’s build-to-rent sector, with pension funds, private equity, and sovereign wealth investors acquiring or developing rental stock at scale. The message is unmistakable: whether you’re a single investor or managing a multi-million-pound portfolio, the property landscape now rewards structure, strategy, and scale.
…over 70% of new buy-to-lets are purchased through companies, and a growing number of investors treating their portfolios as businesses rather than side investments.
However, incorporating property holdings is not a straight forward exercise. The potential tax benefits — from Corporation Tax savings to mortgage interest relief and succession planning — must be balanced against complex rules on Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT), and legislative anti-avoidance. Done correctly, it can transform how you manage and grow your portfolio. Done wrong, it can trigger large unexpected tax bills and HMRC scrutiny.
In today’s Shipleys Tax insight, we take a closer look at when, how, and whether property investors, landlords, and developers — in the UK and abroad — should consider incorporating their portfolios, and how to structure the move in a way that is commercially robust, compliant, and future-proof.
The shifting sands…
UK investment property is increasingly held through companies, not personal names. Various datasets show the direction of travel:
- 70–75% of new buy-to-let purchases now go into companies, and the stock of company-owned BTLs keeps rising.
- 2025 has seen a surge in newly incorporated BTL companies (c. 67k expected), including more international landlords using UK companies.
- On the institutional side, Build-to-Rent continues to scale: 2025 updates show rising capital deployment and a deepening pipeline of professionally managed rental homes — i.e. corporate ownership at scale.
Why this matters: whether you own five units or fifty, the market (and lenders) increasingly assumes a corporate wrapper. That doesn’t mean incorporation is always right—but it does mean you should evaluate it properly.
Why more investors are going limited – summary points
- Tax rate arbitrage (corporation vs personal): Company profits are taxed at 19–25%, versus personal rates up to 45% for landlords.
- Finance cost deductibility: Companies can still deduct 100% of mortgage interest (unlike Section 24-restricted individuals).
Company profits are taxed at 19–25%, versus personal rates up to 45% for landlords.
- Reinvestment & scale: Retaining profits inside the company can make it easier to fund capex and acquisitions (and often plays better with lenders as your portfolio grows). Industry evidence shows professional/portfolio and institutional investors are leaning this way.
- Succession options: With the right share design, you can plan control, income and eventual handover far more neatly than with personally-owned bricks and mortar.
Institutions are not doing this by accident. The rise of professionally managed rental (BTR/single-family) is a clear signal that corporate ownership is the default for scalable portfolios.
Property tripwires
Moving assets from you to your company can trigger tax and lending events. Common pitfalls we regularly help clients avoid:
- CGT at market value on transfer unless qualifying reliefs can be applied.
- SDLT on the company’s acquisition price, including surcharges — partnership routes and genuine business status matter.
Moving assets from you to your company can trigger tax and lending events
- Mortgage reset risk: lenders may re-price or require a new facility when title changes.
- Anti-abuse scrutiny: “form-over-substance” restructures invite HMRC challenge.
These can often be managed with commercially robust planning—but only if mapped before you pull the trigger.
Where Shipleys Tax advice fits
Shipleys Tax act for landlords, developers and cross-border investors who want the benefits of a company without the nasty pitfalls:
- Feasibility modelling: side-by-side projections (personal vs company) so you can see the real after-tax outcome.
- Reliefs & route selection: assessing whether you’re a genuine property business, if partnership routes make sense, and how to minimise/mitigate CGT/SDLT on transfer.
- Banking & debt coordination: working with your broker/lender so finance aligns with the structure (and the timetable).
- Succession & wealth planning: company share design, Family Investment Company (FIC) options, and clean governance for future exits.
- Ongoing compliance: accounts, corporation tax, VAT where relevant—and steady optimisation as rules shift.
Conclusion
Incorporating your property portfolio isn’t a simple formula — but for many serious investors, it has become the foundation of modern, scalable property investment. A company structure can open the door to lower tax rates, full finance deductibility, reinvestment flexibility, and far more controlled succession planning.
However, success lies not in the decision but in the execution. The process must be commercially justified, carefully modelled, and compliant with HMRC’s rules on reliefs and anti-avoidance. A poorly timed or poorly structured incorporation can easily erode the very benefits it was meant to deliver.
At Shipleys Tax, we specialise in helping landlords and investors navigate that fine line — turning complex legislation into practical, tax-efficient strategies.
For further assistance or queries, please contact:
Sheffield: 0114 303 7076 Leeds: 0113 320 9284 Manchester: 0161 850 1655
Email: info@shipleystax.com
Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.
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HMRC Can Now Raid Bank Accounts Directly
HMRC HAS REVIVED powers allowing it to take money directly from taxpayers’ bank accounts to settle unpaid tax debts. These so-called “direct recovery” powers apply to debts over £1,000, though HMRC must leave at least £5,000 across your accounts after any deduction.
While HMRC insists this is targeted only at “persistent non-payers”, the move is a serious escalation in debt collection and risks catching out individuals and businesses who may not realise they have an outstanding liability.
In today’s Shipleys Tax brief, we summarise how it works, the safeguards in place, and what you should do to protect yourself.
HMRC has revived powers allowing it to take money directly from taxpayers’ bank accounts to settle unpaid tax debts
What’s Happening?
HMRC has re-started use of its Direct Recovery of Debts (DRD) powers, allowing it to take money directly from taxpayers’ bank accounts where tax bills remain unpaid.
According to HMRC’s own briefing, updated 22 September 2025, DRD is again being used after being paused during the pandemic (HMRC – Issue Briefing: Direct Recovery of Debts).
These powers apply to debts of £1,000 or more, but HMRC must leave at least £5,000 across your accounts after any deduction. The rules are set out in HMRC’s policy paper on DRD (HMRC policy paper).
Why Now?
The scheme was first legislated previously but paused during Covid. HMRC has now confirmed DRD is being reintroduced on a “test and learn” basis to help tackle rising levels of unpaid tax.
Professional advisers have warned that while the target is “persistent non-payers”, errors, disputed liabilities, or overlooked correspondence could mean ordinary taxpayers are at risk if they don’t engage early with HMRC.
These powers apply to debts of £1,000 or more, but HMRC must leave at least £5,000 across your accounts after any deduction
What Does This Mean for You?
- All taxpayers are potentially affected — individuals, landlords, and businesses.
- Outstanding debts as low as £1,000 can trigger DRD action.
- Safeguards exist (such as notice, objections and appeals), but the process relies on HMRC’s accuracy.
For clients, this means you should:
- Review your HMRC correspondence and ensure no liabilities are outstanding.
- Deal with disputes early before HMRC escalates collection.
- Get professional advice if you receive a DRD notice.
How Shipleys Tax Can Help
At Shipleys Tax, we specialise in defending clients against HMRC enforcement action. We can:
- Negotiate affordable payment arrangements before HMRC acts.
- Challenge incorrect or disputed demands.
- Protect your cashflow and ensure safeguards are applied properly.
Conclusion
Don’t wait until HMRC knocks on your door (or bank account). If you have unresolved tax issues — even relatively small debts — now is the time to act.
Book a confidential consultation with Shipleys Tax today to safeguard your finances and gain peace of mind against any HMRC enforcement action.
HMRC Direct Recovery of Debts – Frequently Asked Questions
Can HMRC really take money directly from my bank account?
Yes. Under its Direct Recovery of Debts (DRD) powers, HMRC can instruct banks and building societies to transfer unpaid tax directly from your accounts. This power was re-started in September 2025 after being paused during the pandemic.
How much must HMRC leave in my account?
HMRC must leave you with at least £5,000 across all accounts after any deduction. The powers only apply where the debt owed is £1,000 or more.
Will HMRC warn me before taking money?
Yes. HMRC must give you advance notice and an opportunity to object or appeal before any funds are recovered. They will also assess whether you are “vulnerable” and require additional support.
What if I dispute the debt?
If you disagree with HMRC’s figures or the debt is under appeal, you can challenge the action. Professional advice is strongly recommended — errors and disputes can and do occur.
Who is most at risk?
Anyone with unresolved HMRC liabilities could be affected — individuals, landlords, self-employed workers, and businesses. While HMRC says DRD targets “persistent non-payers”, the safest approach is to resolve outstanding matters early.
For further assistance or queries, please contact:
Sheffield: 0114 303 7076 Leeds: 0113 320 9284
Email: info@shipleystax.com
Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.
Want more tax tips and news? Sign up to our newsletter below.
NHS Doctors Pensions Error could trigger tax penalties – what you need to know
DOCTORS AND NHS medical professionals may be hit with tax penalties after the NHS Business Services Authority (NHSBSA) admitted to “gross errors” in calculating pension contributions, according to reports. According to the British Medical Association (BMA), nearly 800 doctors were issued with incorrect pension savings statements for the 2023/24 tax year.
In today’s Shipleys Tax brief we look at the latest NHS pension blunder that has left many doctors and consultants at risk of HMRC penalties. Errors in annual allowance calculations mean some GPs cannot finalise their tax returns on time, creating unnecessary stress and possible charges. Here’s what’s gone wrong, why it matters, and—most importantly—what to do now.
What’s gone wrong?
According to the BMA, at least 757 doctors were issued incorrect 2023/24 Pension Savings Statements (PSS). The error relates to the opening value for 2023/24, which was wrongly increased by an extra 1.5% on top of the 10.1% CPI revaluation set by law. This produced incorrect Pension Input Amounts (PIAs) and has made accurate self-assessment difficult for affected clinicians. The NHSBSA has acknowledged the error and indicated the PIA shown was lower than it should have been.
The error relates to the opening value for 2023/24, which was wrongly increased by an extra 1.5% on top of the 10.1% CPI revaluation…
What does HMRC say?
HMRC allows you to file on time using the best available (provisional) figures and amend within 12 months of the filing deadline without a late-filing penalty. Do note that interest can still apply if extra tax becomes due on amendment. NHSBSA guidance mirrors this approach for affected members.
Annual allowance refresher – why this is an issue
- Standard annual allowance: £60,000.
- Tapered allowance: if threshold income > £200,000 and adjusted income > £260,000, the allowance tapers down to a minimum of £10,000 at higher adjusted incomes.
Practical steps for doctors to take now
- Identify if you’re affected – check your 2023/24 PSS and any NHSBSA letters; note the 1.5% opening value issue.
- File by the deadline using estimates – protect yourself from late-filing penalties; diarise to amend within 12 months when the corrected PSS arrives.
- Retain evidence – keep NHSBSA/BMA correspondence and workings you used for your estimate.
- Re-work your position – use payslips and prior statements to sense-check likely PIA and possible carry-forward.
- Use carry-forward – bring in unused allowances from the previous three years to reduce any annual-allowance charge (where eligible).
- Assess taper risk – if you’re around the £200k–£260k thresholds, get advice to avoid inadvertent taper traps.
- Claim your costs – if you’ve incurred extra accountancy fees or interest solely because of this error, the NHSBSA will consider reimbursement. Keep invoices and bank proof.
- Amend promptly – when your corrected PSS arrives, submit the amendment to limit interest and tidy up your records.
File by the deadline using estimates – protect yourself from late-filing penalties; amend within 12 months when the corrected PSS arrives…
Why this matters for medical professionals
The NHS pension is a major and valuable benefit. However, complex annual allowance and taper rules can create unexpected tax charges and discourage extra sessions—administrative errors only make the situation worse. Specialist advice helps ensure you pay the right tax—no more, no less.
Conclusion – take professional advice
At Shipleys Tax, we specialise in advising GPs, consultants and healthcare professionals on NHS pension tax. We regularly:
- Check, amend and appeal incorrect pension tax calculations;
- Structure earnings to minimise annual-allowance exposure and protect retirement wealth;
- Handle filings on time—even where provisional figures are needed—and tidy up once corrected data arrives.
Concerned about your NHS pension statement or potential tax penalties? Contact us below:
Sheffield: 0114 303 7076 Leeds: 0113 320 9284
Email: info@shipleystax.com
Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.
Want more tax tips and news? Sign up to our newsletter below.
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