Government dilutes inheritance tax policy for farms

Treasury intentions to tax passed-down farmland have been watered down, with the planned tax-free allowance increasing from £1m to £2.5m.

This climbdown is a response to months of protests by agricultural workers and disquiet from some governing party parliamentarians.

Background

At last year's Budget, the government stated they would start imposing a inheritance charge on inherited farmland and machinery worth more than £1m from the 2026 tax year.

In her initial Budget in 2024, Chancellor Rachel Reeves stated she would be ending the favourable treatment on agricultural assets that had been in place since the 1980s.

The move would have seen passed-down agricultural assets worth over £1m subject to a levy at 20%, 50% of the standard inheritance tax rate, yielding an estimated £520m each year by 2029.

Government Statement

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

"It's only fair that bigger holdings shoulder more of the burden, while we support the farms and trading businesses that are the foundation of Britain's countryside."

Sector Feedback

The President of the National Farmers' Union praised the adjustment, saying it "exempts many family farms from the path of damaging policy."

The Head of the Country Land and Business Association said: "The government deserves credit for acknowledging the problems in the original policy and changing course."

He added, "However, this announcement only reduces the harm - it doesn't eliminate it totally. 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 charge remains crippling."

Cross-Party Response

In the year-plus since the first announcement, there have been frequent demonstrations by farmers close to Parliament.

Some governing party politicians in rural areas have also raised objections. At a recent division in the Commons on the plan, a several backbenchers withheld their support and one rebelled.

The Conservative leader posted on a social platform: "This campaign isn't done. Other family businesses are still impacted by Labour's tax raid, and we will keep pushing until the tax is removed from them too."

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

The Reform UK spokesperson said: "This last-minute concession - whilst a step forward - 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 unfair farms tax."

Revised Details

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

Yet, it has now retreated from the first announcement lifting the tax-free amount to £2.5m.

Coupled with an provision which allows farmers to pass on assets to their spouses free of inheritance tax, this new policy adjustment means a couple could pass on up to £5m in qualifying assets.