Ministers alters inheritance tax proposal for farmland

Ministerial intentions to impose a duty on inherited agricultural land have been substantially altered, with the originally announced exemption limit rising from £1m to £2.5m.

This rethink comes after months of campaigns by agricultural workers and unease from some Labour MPs.

Initial Announcement

At last year's Budget, ministers said they would start applying a one-fifth levy on inherited agricultural assets worth more than £1m from the 2026 tax year.

In her maiden fiscal event in 2024, Finance Minister Rachel Reeves stated she would be scrapping the favourable treatment on agricultural assets that had been in place since the 1980s.

The move would have seen inherited farmland worth over £1m taxed at 20%, half the standard inheritance tax rate, raising an projected £520m each year by 2029.

Government Statement

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

"It's only right that larger estates shoulder more of the burden, while we support the farms and trading businesses that are the backbone of Britain's rural communities."

Industry Reaction

The President of the National Farmers' Union welcomed the change, saying it "removes many family farms from the eye of pernicious policy."

The Head of the Country Land and Business Association noted: "The government should be commended for recognising the flaws in the initial plan and adjusting its approach."

He went on to say, "Nonetheless, this revision only reduces the harm - it doesn't eliminate it entirely. Many family businesses will own enough high-value equipment and land to be valued above the threshold, yet still operate on such narrow returns that this levy remains crippling."

Political Fallout

In the year-plus since the original plan, there have been frequent rallies by farmers outside Parliament.

Some Labour MPs in the countryside have also expressed concern. At a recent parliamentary vote on the plan, a twelve backbenchers withheld their support and one voted against.

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

A Liberal Democrat spokesperson said: "It is completely unacceptable that family farmers have been put through over a year of anxiety and stress since the government first floated these changes."

The political party spokesperson remarked: "This calculated climbdown - whilst an improvement - does little to address the year of worry that farmers have faced... with British agriculture under severe pressure, the government must go further and scrap this callous agricultural levy."

Revised Details

The government had argued that the policy would safeguard smaller farms while stopping wealthy investors from buying farmland as a way to reduce tax.

Yet, it has now retreated from the first announcement increasing the exemption limit to £2.5m.

Combined with an allowance which allows farmers to pass on assets to their spouses free of inheritance tax, this new revised threshold means a married pair could pass on up to £5m in eligible assets.