The administration softens inheritance tax proposal for agricultural businesses

Ministerial plans to tax passed-down farming assets have been watered down, with the planned threshold being raised from £1m to £2.5m.

This climbdown is a response to an extended period of demonstrations by agricultural workers and disquiet from some governing party backbenchers.

Initial Announcement

At last year's financial statement, ministers said they would start introducing a 20% tax on inherited farmland and machinery worth more than £1m from April 2026.

In her initial Budget in 2024, Finance Minister Rachel Reeves announced she would be reversing the tax relief on agricultural assets that had been in place since the 1980s.

The measure would have seen passed-down farmland worth over £1m taxed at 20%, 50% of the standard inheritance tax rate, yielding an projected £520m per year by 2029.

Ministerial Comments

"We have heeded the calls to the farming community across the country and we are adjusting our policy today to protect more ordinary family farms."

"It's only fair that wealthier landowners shoulder more of the burden, while we back the agricultural enterprises that are the backbone of Britain's countryside."

Industry Reaction

The President of the National Farmers' Union welcomed the revision, saying it "exempts many family farms from the path of damaging storm."

The Spokesperson of the Country Land and Business Association said: "The government should be commended for identifying the problems in the first proposal and changing course."

He went on to say, "Nonetheless, this announcement only reduces the harm - it doesn't eliminate it completely. Many family businesses will own enough costly assets and land to be priced above the limit, yet still operate on such narrow profit margins that this charge remains crippling."

Cross-Party Response

In the 14 months since the initial proposal, there have been ongoing protests by farmers close to Parliament.

Some backbenchers in rural areas have also raised objections. At a recent parliamentary vote on the plan, a dozen backbenchers withheld their support and one voted against.

The Conservative leader commented on social media: "This fight isn't over. Other family businesses are still affected by Labour's tax raid, and we will keep campaigning until the tax is scrapped from them too."

A Liberal Democrat spokesperson argued: "It is utterly inexcusable that family farmers have been put through over a year of uncertainty and anguish since the government first proposed these plans."

The political party deputy leader remarked: "This cynical concession - whilst better than nothing - does little to address the year of worry that farmers have faced... with British agriculture under severe pressure, the government must go further and abolish this damaging farms tax."

New Terms

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

However, it has now stepped back from the first announcement lifting the exemption limit to £2.5m.

Coupled with an allowance which allows farmers to pass on assets to their husbands or wives tax-free, this new revised threshold means a partnership could pass on up to £5m in eligible assets.