The administration dilutes inheritance tax plan for farms

Treasury intentions to impose a duty on inherited farming assets have been watered down, with the planned exemption limit increasing from £1m to £2.5m.

This rethink is a response to an extended period of demonstrations by the farming community and unease from some Labour MPs.

Background

At last year's financial statement, the government announced they would start imposing a 20% tax on inherited agricultural assets worth more than £1m from April 2026.

In her initial fiscal event in 2024, Chancellor Rachel Reeves declared she would be reversing the tax relief on farmland that had been in place since the 1980s.

The move would have seen passed-down farmland worth over £1m subject to a levy at 20%, half the standard inheritance tax rate, yielding an estimated £520m per year by 2029.

Ministerial Comments

"We have paid close attention to the farming community across the country and we are introducing modifications today to protect more typical family farms."

"It's only just that larger estates contribute more, while we stand by the family-run farms that are the foundation of Britain's countryside."

Sector Feedback

The Leader of the National Farmers' Union welcomed the revision, commenting it "exempts many family farms from the path of harmful tax."

The Spokesperson of the Country Land and Business Association remarked: "The government is to be praised for acknowledging the problems in the original policy and adjusting its approach."

He went on to say, "That said, this concession only reduces the harm - it doesn't eradicate it entirely. Many family businesses will own enough costly assets and land to be priced above the limit, yet still operate on such thin returns that this levy remains unaffordable."

Political Fallout

In the period since the initial proposal, there have been regular protests by farmers near Parliament.

Some governing party politicians in rural areas have also expressed concern. At a recent legislative vote on the plan, a several backbenchers did not vote and one opposed the measure.

The Conservative leader said on social media: "This battle isn't finished. Other family businesses are still impacted by Labour's levy, and we will keep fighting until the tax is removed from them too."

A opposition party MP said: "It is completely unacceptable that family farmers have been put through over a year of anxiety and distress since the government first proposed these plans."

The Reform UK deputy leader remarked: "This calculated climbdown - whilst an improvement - does little to address the year of worry that farmers have faced... with British agriculture in a precarious state, the government must go further and abolish this damaging agricultural levy."

Updated Policy

The government had maintained that the original measure would protect smaller farms while stopping wealthy investors from buying farmland as a tax avoidance scheme.

However, it has now stepped back from the original proposal raising the exemption limit to £2.5m.

Alongside an exemption which allows farmers to pass on assets to their spouses free of inheritance tax, this new policy adjustment means a married pair could pass on up to £5m in qualifying assets.