The Government has just rowed back on plans to extend inheritance tax to farms.
The policy has prompted a furious backlash from farmers, who said it would prevent many of them from being able to pass on their farms to their children. The climbdown follows months of protests by farmers as well as concern from some Labour backbenchers.
At last year’s Budget, ministers announced they would start imposing a 20% tax on inherited agricultural assets worth more than £1 million from April 2026. Now in a major concession, the Government has announced the threshold will be lifted from £1 million to £2.5 million. The new rules are due to come into force in April 2026.
Raising the threshold will significantly reduce the number of farms facing higher inheritance tax bills, and ensure that only the largest estates are affected.
Environment Secretary Emma Reynolds said: “Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming. We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.
“We are increasing the individual threshold from £1m to £2.5m which means couples with estates of up to £5m will now pay no inheritance tax on their estates. 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.”
In a document explaining the decision, the Government claimed they had “listened” to farmers. It said: “The government has today announced that the level of the agricultural and business property reliefs threshold will be increased from £1m to £2.5m when it is introduced in April 2026. This allows spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances.
“Following the reforms to agricultural and business property reliefs announced at budget 2024, the government has listened to concerns of the farming community and businesses about the reforms.
“Having carefully considered this feedback, the government is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief. The change will be introduced to the Finance Bill in January and will apply from 6 April.”
NFU president Tom Bradshaw said the announcement would be a “huge relief to many” and would “greatly” reduce the tax burden for many family farms.
He said: “Changes to Agriculture Property Relief (APR) and Business Property Relief (BPR) announced in last year’s budget came as a huge shock to the farming community. Until that moment, the best tax planning advice was to hold on to your farm until death and pass it on to the next generation who could continue to run a viable farming, food producing business.
“The original changes to APR and BPR, contained within the Finance Bill, resulted in a pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm. The NFU and its members have stood strong for what we believed in.
“I am thankful common sense has prevailed and government has listened.”
The Liberal Democrats called for the Government to scrap the “unfair tax in full” as “many family farms will still find themselves financially crippled and barely making the minimum wage”.