Farm Inheritance Tax Relief: Plan Scaled Back 🚜

Government proposals to tax inherited farmland have been revised, increasing the planned threshold from £1m to £2.5m following months of protests from farmers and concerns raised by some lawmakers.

Changes to Inheritance Tax on Farmland

The adjustment follows widespread opposition to the initial plan announced in the 2024 Budget, which aimed to impose a 20% tax on inherited agricultural assets exceeding £1m from April 2026, ending a previous 100% tax relief dating back to the 1980s.

Environment Secretary Emma Reynolds announced the changes, stating, “We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.” She added, “It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities.”

Tom Bradshaw, head of the National Farmers’ Union, welcomed the change, stating it “takes out many family farms from the eye of a pernicious storm.” Gavin Lane, president of the Country Land and Business Association, acknowledged the government’s responsiveness, but cautioned that the tax burden would remain unaffordable for many businesses.

Ben Ardern, a farmer from Derbyshire, described the move as “a step in the right direction,” suggesting the tax should be dropped for family farms and focused on larger investors who have purchased land solely for tax avoidance.

Farmers have held regular protests outside Parliament since the initial proposal was announced 14 months ago. Some Labour MPs in rural areas also voiced concerns, with one MP, Markus Campbell-Savours, voting against the plan and subsequently being suspended from the party.

Conservative leader Kemi Badenoch indicated the fight was not over, stating other family businesses remain affected by what she termed “Labour’s tax raid.” Liberal Democrat spokesperson Tim Farron MP criticized the government for causing over a year of uncertainty for farmers and called for a full reversal of the tax.

Reform UK deputy leader Richard Tice described the climbdown as “cynical” and insufficient, urging the government to abolish the tax entirely.

Original Proposal and Revised Plan

The original plan, announced by Chancellor Rachel Reeves in 2024, aimed to reverse the 100% inheritance tax relief on agricultural assets in place since the 1980s. This would have taxed inherited assets over £1m at 20%, half the standard inheritance tax rate, and was projected to raise an estimated £520m annually by 2029.

The government argued the change would protect smaller farms while preventing wealthy investors from exploiting farmland as a tax loophole. Under the revised plan, coupled with an existing exemption for transfers to spouses, couples could pass on up to £5m in qualifying assets tax-free. A 50% relief will be applied to assets exceeding the £2.5m threshold.

The government estimates the number of estates paying more inheritance tax in 2026/27 will decrease from around 2,000 under the original plans to 1,100 under the new proposal.

This climbdown is the latest in a series of U-turns the government has made since taking office in July 2024, including easing cuts to winter fuel payments and backtracking on planned welfare cuts.