The administration softens inheritance tax proposal for farms

Treasury proposals to impose a duty on passed-down farmland have been watered down, with the proposed threshold rising from £1m to £2.5m.

This concession comes after months of protests by agricultural workers and unease from some governing party backbenchers.

Background

At last year's financial statement, ministers stated they would start imposing a 20% tax on passed-on farming businesses worth more than £1m from the 2026 tax year.

In her maiden Budget in 2024, Chancellor Rachel Reeves declared she would be scrapping the tax relief on agricultural assets that had been in place since the 1980s.

The measure would have seen inherited agricultural assets worth over £1m subject to a levy at 20%, half the standard inheritance tax rate, generating an projected £520m each year by 2029.

Official Announcement

"We have paid close attention to family farms across the country and we are introducing modifications today to shield more typical family farms."

"It's only just that wealthier landowners shoulder more of the burden, while we stand by the agricultural enterprises that are the backbone of Britain's countryside."

Industry Reaction

The Leader of the National Farmers' Union applauded the adjustment, stating it "takes out many family farms from the threat of harmful tax."

The President of the Country Land and Business Association noted: "The government deserves credit for recognising the shortcomings in the initial plan and adjusting its approach."

He continued, "That said, this concession only reduces the harm - it doesn't eliminate it completely. Many family businesses will own enough high-value equipment and land to be valued above the threshold, yet still operate on such small returns that this tax burden remains crippling."

Political Fallout

In the 14 months since the initial proposal, there have been regular protests by farmers close to Parliament.

Some backbenchers in rural areas have also voiced unease. At a recent parliamentary vote on the plan, a dozen backbenchers did not vote and one opposed the measure.

The opposition leader commented on a social platform: "This battle isn't finished. Other family businesses are still harmed by Labour's levy, and we will keep campaigning until the tax is removed from them too."

A opposition party spokesperson stated: "It is utterly inexcusable that family farmers have been put through over a year of anxiety and anguish since the government first floated these plans."

The Reform UK spokesperson said: "This calculated concession - whilst an improvement - does little to address the year of worry that farmers have faced... with British agriculture hanging by a thread, the government must go further and abolish this callous farms tax."

Updated Policy

The government had argued that the policy would safeguard smaller farms while preventing the very rich from buying farmland as a tax avoidance scheme.

But, it has now retreated from the first announcement increasing the exemption limit to £2.5m.

Alongside an provision which allows farmers to pass on assets to their husbands or wives without incurring tax, this new revised threshold means a married pair could pass on up to £5m in eligible assets.