Ministers modifies inheritance tax policy for agricultural businesses

Government intentions to levy a charge on passed-down agricultural land have been watered down, with the originally announced threshold rising from £1m to £2.5m.

This concession is a response to months of campaigns by farmers and disquiet from some governing party parliamentarians.

Background

At last year's Budget, the Chancellor said they would start imposing a inheritance charge on inherited farmland and machinery worth more than £1m from April 2026.

In her initial Budget in 2024, Chancellor Rachel Reeves stated she would be reversing the exemption on farmland that had been in place since the 1980s.

The measure would have seen inherited farmland worth over £1m subject to a levy at 20%, 50% of the standard inheritance tax rate, yielding an projected £520m annually by 2029.

Government Statement

"We have heeded the calls to farmers across the country and we are adjusting our policy today to safeguard more everyday family farms."

"It's only just that bigger holdings pay a greater share, while we back the family-run farms that are the backbone of Britain's rural communities."

Farming Response

The Leader of the National Farmers' Union applauded the change, commenting it "removes many family farms from the eye of pernicious tax."

The Head of the Country Land and Business Association remarked: "The government should be commended for recognising the flaws in the initial plan and adjusting its approach."

He went on to say, "However, this concession only mitigates the impact - it doesn't eradicate it entirely. Many family businesses will own enough expensive machinery and land to be priced above the limit, yet still operate on such thin profit margins that this charge remains prohibitive."

Parliamentary Reaction

In the year-plus since the original plan, there have been frequent protests by farmers near Parliament.

Some Labour MPs in farming constituencies have also voiced unease. At a recent parliamentary vote on the plan, a several backbenchers withheld their support and one opposed the measure.

The opposition leader commented on social media: "This fight isn't done. Other family businesses are still impacted by Labour's tax grab, and we will keep fighting until the tax is lifted from them too."

A Liberal Democrat spokesperson argued: "It is totally unforgivable that family farmers have been put through over a year of uncertainty and distress since the government first proposed these changes."

The political party spokesperson said: "This last-minute climbdown - whilst an improvement - does little to address the year of anxiety that farmers have faced... with British agriculture under severe pressure, the government must go further and scrap this damaging farms tax."

Revised Details

The government had contended that the change would help smaller farms while stopping large estates from buying farmland as a tax avoidance scheme.

However, it has now stepped back from the first announcement raising the threshold level to £2.5m.

Combined with an provision which allows farmers to pass on assets to their husbands or wives without incurring tax, this new government concession means a partnership could pass on up to £5m in qualifying assets.