Government Modifies Inheritance Tax Plans for Agricultural Lands

Recent adjustments to the government’s inheritance tax strategy for farmland have significantly softened the proposed terms, now raising the threshold from £1 million to £2.5 million.

This decision comes in response to extensive protests from farmers and apprehensions voiced by several Labour backbenchers over the past few months.

During last year’s Budget announcement, officials indicated that a 20% tax would be levied on inherited agricultural assets valued above £1 million starting in April 2026, eliminating the 100% tax exemption that has been in effect since the 1980s.

Emma Reynolds, the Environment Secretary, revealed the changes after Parliament’s recess for Christmas, stating, “We have been attentive to the concerns raised by farmers nationwide and are implementing alterations today to safeguard more typical family farms.”

She added, “It is only fair that larger estates contribute more, while we support the farms and businesses that form the backbone of rural communities in Britain.”

The head of the National Farmers’ Union, Tom Bradshaw, praised the new threshold, noting it “exempts numerous family farms from a troubling predicament.”

Meanwhile, Gavin Lane, president of the Country Land and Business Association, acknowledged the government’s recognition of the original policy’s shortcomings but cautioned that the adjustment merely mitigated the impact rather than eliminate it entirely.

“Many family-run enterprises possess enough valuable machinery and land to surpass the new threshold, yet they operate with slim profit margins, rendering this tax burden unmanageable,” he expressed.

Ben Ardern, a Derbyshire farmer, described the adjustment as “a positive move,” urging the government to entirely eliminate the tax for family farms and focus on taxing wealthier individuals.

“Large corporations that invest in land to dodge taxes are not farmers; they merely exploit the system,” he remarked.

In the 14 months since the proposal’s unveiling, farmers have consistently protested outside Parliament. Additionally, some Labour MPs from rural constituencies have also voiced their discontent.

During a recent parliamentary vote regarding the plan, twelve backbenchers abstained, while one MP, Markus Campbell-Savours, voted against it, resulting in his suspension from the Labour party, leaving him to serve as an independent.

John Whitby, a Labour MP affiliated with the Rural Research Group, hailed the government’s reversal on the inheritance tax as “fantastic news.”

However, a Labour source characterized the timing of this change as “strange,” noting that many MPs had recently been compelled to vote in favor of the original proposal.

Conservative leader Kemi Badenoch took to social media to assert, “This battle is not over. Other family enterprises continue to be impacted by Labour’s tax policies, and we will persist until this tax is lifted from them as well.”

Tim Farron, a spokesperson for the Liberal Democrats, criticized the government, stating, “It is completely unacceptable that family farmers have endured over a year of uncertainty and distress since the government first introduced these changes.”

He further demanded the complete repeal of the unjust tax, warning that if the government failed to act, the Liberal Democrats would propose amendments in the new year to reduce it.

Richard Tice, deputy leader of Reform UK, labeled the government’s retreat as “cynical,” asserting that while it is an improvement, it does little to alleviate the anxiety farmers have faced over the past year as they strive to secure their livelihoods.

In her initial Budget presentation for 2024, Chancellor Rachel Reeves proposed the retraction of the 100% inheritance tax exemption on agricultural assets, which had lasted since the 1980s.

This shift would see inherited agricultural assets valued over £1 million subject to a 20% tax, half the usual inheritance tax rate, potentially generating around £520 million annually by 2029.

The government had contended that this modification would shield smaller farms while curtailing wealthy investors from using farmland as a tax evasion strategy.

Nevertheless, the administration has now retreated from its original stance, elevating the threshold to £2.5 million.

In addition, a new exemption permits farmers to transfer assets to their spouses without incurring taxes, allowing a couple to pass on up to £5 million in qualifying assets free of tax obligations.

For properties exceeding the threshold, a 50% relief will be applied to the remaining assets.

The government estimates that the number of estates liable for increased inheritance tax in 2026/27 will decrease from approximately 2,000 under the initial proposal to around 1,100 with the new changes.

A Treasury official indicated that adjusting the thresholds would cost the government £130 million but stressed there are “no plans” to completely abandon the policy.

“The principle of reforming the tax structure persists,” the official stated. “We believe it is essential for the wealthiest estates to pay their due share, while smaller farms will receive assistance.”

This latest concession marks another instance of the government’s reversals since its election in July 2024, following earlier decisions to ease cuts to winter fuel payments and retract plans to implement £5 billion in welfare cuts.