Government waters down farm inheritance tax plan

Government proposals to tax inherited agricultural land have been relaxed, with the planned threshold increasing from £1 million to £2.5 million.

The decline comes after months of protests by farmers and concerns from some members of the Labor Party.

In last year's Budget, ministers said they would introduce a 20% tax on inherited farming assets worth more than £1 million from April 2026. ending 100% of the tax breaks that have been in place since the 1980s.

In a statement released after MPs left Parliament for the Christmas recess, Environment Secretary Emma Reynolds said: “We have listened closely to farmers across the country and are making changes today to protect more ordinary family farms.”

“It is right that larger estates make a greater contribution, while we support the farms and retailers that are the backbone of Britain's rural communities,” she said.

National Farmers' Union chief executive Tom Bradshaw welcomed the change, telling BBC Radio 5 Live it would “take many family farms out of the eye of the destructive storm”.

Gavin Lane, president of the Country Land and Business Association, said: “The Government should be commended for recognizing the shortcomings of the original policy and changing course.

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

“Many family businesses will own machinery and land expensive enough to be worth more than the threshold, but operate on such tight 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 “give up on this”. [the tax] for family farms… and just tax those people who have the money to tax.

“The big corporations that just put money in the ground, they're not farmers, they just did it to avoid taxes. Farmers didn't buy land to avoid taxes, we bought land to farm it and grow food.”

In the 14 months since the original proposal was announced, farmers have regularly protested in front of Parliament.

Some Labor MPs in rural areas have also expressed concern. In a recent parliamentary vote on the plan, a dozen MPs abstained and one, Marcus Campbell-Savors, voted against it.

Campbell-Savours was subsequently suspended for voting against the government, meaning he is now an independent MP.

John Whitby, Labor MP for the Rural Research Group, said the Government's cut to inheritance tax was “fantastic news”.

But one Labor source described the timing of the changes as “bizarre”.

They added that many MPs would be annoyed because “they were so recently forced to vote for this”.

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

“Other family businesses are still suffering from Labour's tax raid and we will continue to push until the tax is lifted on them too.”

Lib Dem spokesman Tim Farron MP said: “It is completely inexcusable that family farming has endured more than a year of uncertainty and suffering since the government first announced these changes.

“We demand that the government scrap this unfair tax entirely and if it refuses, the Liberal Democrats will introduce amendments in the New Year to reduce it.”

Deputy leader of the UK reform government, Richard Tice, said: “This cynical cut – while better than nothing – does little to address the anxiety farmers have faced throughout the year as they plan to protect their livelihoods… with British farming hanging by a thread, the government must go further and scrap this callous farm tax.”

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

The move would have resulted in inherited farming assets worth more than £1 million being taxed at 20%, half the standard inheritance tax rate, raising an estimated £520 million annually by 2029.

The government argued that the change would protect small farms while preventing wealthy investors from buying farmland as a tax loophole.

However, he has now backed down from the original offer, raising the threshold to £2.5 million.

Combined with an exemption that allows farmers to transfer assets to their spouses tax-free, this new government concession means a couple can transfer up to £5 million in qualifying assets tax-free.

If the threshold value is exceeded, a 50% discount will be applied to the remaining assets.

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

A Treasury source said changing the thresholds would cost the government £130 million, but there were “no plans” to scrap the policy completely.

“The principle of reforming the tax system remains,” the source said. “It’s right that the richest estates pay their fair share, but smaller farms will also get help.”

The reduction is the latest in a series of U-turns the government has made since its election in July 2024.

Earlier this year the government lighter cuts to winter payments for fuel and retreated plans to cut social care spending by £5 billion.