Government waters down farm inheritance tax plan

Government proposals to tax inherited farmland have been watered down, with the planned threshold rising from £1m to £2.5m.

The drop follows months of farmer protests and concerns from some Labor backbenchers.

During last year’s Budget, ministers announced they would begin imposing a 20% tax on inherited agricultural assets worth more than £1m from April 2026. ending the 100% tax break in place since the 1980s.

In an announcement released after MPs left Parliament for the Christmas break, 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,” she said.

National Farmers Union president Tom Bradshaw welcomed the change, telling BBC Radio 5 Live that it “takes many family farms out of the eye of a pernicious storm”.

Gavin Lane, chairman of the Country Land and Business Association, said: “The Government deserves credit for recognizing the flaws in the original policy and changing course.

“However, this announcement only limits the damage, it does not eradicate it completely.

“Many family businesses own machinery and land that are expensive enough to be valued above the threshold, yet operate with such narrow profit margins that this tax burden remains unaffordable.”

Ben Ardern, a farmer from Derbyshire, told the BBC it was “a step in the right direction”.

He said the government should “let it go [the tax] for family farms… and tax only those who have the money to tax.

“The big companies that just invested money in land – they’re not farmers, they just did it to avoid tax. Farmers didn’t buy land to avoid tax, we bought land to farm and grow food.”

In the 14 months since the initial proposal was announced, farmers’ protests have regularly taken place outside Parliament.

Some Labor MPs from rural areas have also expressed concern. In a recent parliamentary vote on the bill, a dozen backbenchers abstained and one, Markus Campbell-Savours, voted against.

Campbell-Savours was later suspended for voting against the government, meaning he now sits as an independent MP.

Conservative Leader Kemi Badenoch said in a social media post: “This fight is not over.

“Other family businesses are still being hit by Labour’s tax raid, and we will continue to lobby until they are taken down too.”

Liberal Democrat spokesperson Tim Farron said: “It is completely inexcusable that family farmers have suffered over a year of uncertainty and anxiety since the Government first announced these changes.

“We demand that the government completely scraps this unfair tax and if they refuse to do so, the Liberal Democrats will bring forward amendments in the new year to reduce it.”

Deputy leader of the UK Reform Party, Richard Tice, said: “This cynical fall – while better than nothing – does little to address the year of anxiety farmers have faced in planning to protect their livelihoods… with British farming hanging by a thread, the Government must go further and abolish this callous farm tax. »

In her first Budget of 2024, Chancellor Rachel Reeves announced she would reverse the 100% inheritance tax relief on agricultural assets, which has been in place since the 1980s.

The move would have seen inherited farming assets worth more than £1m worth taxed at 20%, half the standard rate of inheritance tax, raising around £520m a year by 2029.

The government had argued the change would protect small farms while preventing wealthy investors from buying farmland to take advantage of a tax loophole.

However, he has now withdrawn from the original proposal increasing the threshold to £2.5 million.

Coupled with an exemption that allows farmers to pass their assets to their spouses tax-free, this new government concession means a couple could pass on up to £5 million of qualifying assets, without paying tax.

Above the threshold, a 50% relief will be applied to remaining assets.

The number of UK estates expected to pay more inheritance tax in 2026/27 will be reduced from around 2,000 under original plans to 1,100 under the new proposal, according to the government.

This drop is the latest in a series of reversals made by the government since its election in July 2024.

Earlier this year, the government eased cuts to winter fuel payments and reversed plans to cut £5 billion from the welfare bill.