Ministers raise inheritance tax threshold for farms after backlash | Tax and spending

Ministers will increase the tax threshold for inherited farmland from £1 million to £2.5 million after months of pressure from campaigners and MPs representing rural areas.

In a statement released just before Christmas, the Environment Ministry announced a U-turn, which will apply from April, when the tax comes into force.

Plans to tax inherited farming assets worth more than £1million at a rate of 20% were announced in Rachel Reeves’ first budget last year.

The change reverses tax breaks that had existed in modern form since the 1980s. Above the £1 million threshold, inherited farmland was to be taxed at 20%, or half the standard rate of inheritance tax, in a measure initially estimated to cost £520 million a year by 2029.

The announcement was branded a “family farm tax” by critics and sparked protests across the UK, with farmers arguing it would prevent many of them from passing on their farms to their children.

The reversal follows intensive behind-the-scenes efforts by a group of Labor MPs who were pushing for the threshold to be changed and who made their case to Treasury and Environment ministers as well as Keir Starmer.

The Prime Minister admitted at a select committee hearing last week that he had been told about terminally ill farmers who were planning to take their own lives to avoid the tax.

Downing Street sources said a number of backbenchers had “built a strong evidence base” and spoke out privately against the tax, including Starmer’s parliamentary private secretary Jon Pearce.

Nearly a dozen MPs were involved, including Peterborough MP Andrew Pakes; Aylesbury MP Laura Kyrke-Smith; Buckingham and Bletchley MP Callum Anderson; Hitchin MP Alistair Strathern; and Hastings and Rye MP Helena Dollimore.

Markus Campbell-Savours, a Labor MP who represents the rural seat of Penrith and Solway in Cumbria, was suspended from the party earlier this month for voting against the tax.

A government source said there had been no change to Campbell-Savours’ suspension and that he had been disciplined for voting against a budget resolution.

In a statement announcing the U-turn, the Department for Environment, Food and Rural Affairs (Defra) said ministers had “listened to the concerns of the farming and business community regarding the reforms”.

Raising the threshold means fewer farms will be taxed. According to the government, the number of areas affected next year will be 185, compared to 375.

The change means married couples with estates of up to £5million will now pay no inheritance tax as they can combine two allowances of £2.5million.

The cut will cost the exchequer £130m, meaning the changes are still expected to bring in almost £300m a year.

Environment Secretary Emma Reynolds said: “We have listened carefully to farmers across the country and today we are making changes to protect more ordinary family farms.

“It’s right that larger properties contribute more, while we support the farms and commercial businesses that form the backbone of Britain’s rural communities.”

National Farmers Union president Tom Bradshaw hailed the announcement as a “huge relief for many” that would significantly reduce the tax burden on many family farms.

“I am grateful that common sense prevailed and the Government listened. I had two very constructive meetings with Prime Minister Sir Keir Starmer and dozens of conversations with Defra Secretary of State Emma Reynolds. She played a key role in highlighting the human impact of this tax.

“These conversations led to today’s changes that were so desperately needed. From the start, the government said it was trying to protect the family farm and the change announced today brings that much closer to reality for many.”

Conservative Leader Kemi Badenoch said the change was a big victory for the Conservatives’ campaign against the tax.

“Earlier this year I was told to abandon our campaign, that there weren’t many votes, there weren’t many farmers and people thought they were rich enough to get by anyway. I ignored the advice and continued campaigning,” she said. “Farmers are exactly the kind of people Conservatives stand for. »

The Liberal Democrats have urged ministers to go further and scrap inheritance tax on farms altogether. Reform UK deputy leader Richard Tice said the concession was better than nothing, but also called for the tax to be abolished.

The Labor Rural Research Group, which represents Labor MPs in rural constituencies, welcomed the announcement. Jenny Riddell-Carpenter, MP for Suffolk Coastal and chair of the group, said it means “fewer families facing impossible choices and greater certainty that farms can continue to operate, invest and contribute to our rural economy”.