The administration weakens inheritance tax proposal for farmland

Government plans to impose a duty on inherited farmland have been watered down, with the planned threshold increasing from £1m to £2.5m.

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

Initial Announcement

At last year's Budget, ministers stated they would start imposing a one-fifth levy on inherited farmland and machinery worth more than £1m from April 2026.

In her maiden Budget in 2024, Finance Minister Rachel Reeves stated she would be scrapping the exemption on farmland that had been in place since the 1980s.

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

Ministerial Comments

"We have heeded the calls to farmers across the country and we are introducing modifications today to shield more everyday family farms."

"It's only just that bigger holdings pay a greater share, while we back the family-run farms that are the foundation of Britain's countryside."

Farming Response

The President of the National Farmers' Union praised the change, saying it "takes out many family farms from the eye of damaging tax."

The Spokesperson of the Country Land and Business Association remarked: "The government deserves credit for recognising the problems in the initial plan and revising its stance."

He added, "Nonetheless, this concession only mitigates the impact - it doesn't remove it entirely. Many family businesses will own enough expensive machinery and land to be assessed above the threshold, yet still operate on such small profit margins that this levy remains unaffordable."

Parliamentary Reaction

In the period since the original plan, there have been regular demonstrations by farmers outside Parliament.

Some Labour MPs in farming constituencies have also raised objections. At a recent legislative vote on the plan, a dozen backbenchers withheld their support and one rebelled.

The opposition leader said on a social platform: "This battle isn't over. Other family businesses are still impacted by Labour's tax raid, and we will keep campaigning until the tax is lifted from them too."

A Liberal Democrat MP 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 Reform UK spokesperson remarked: "This calculated concession - whilst a step forward - does little to address the year of anxiety that farmers have faced... with British agriculture in a precarious state, the government must go further and scrap this unfair agricultural levy."

Updated Policy

The government had argued that the original measure would safeguard smaller farms while preventing wealthy investors from buying farmland as a tax loophole.

Yet, it has now stepped back from the initial plan increasing the threshold level to £2.5m.

Coupled with an provision which allows farmers to pass on assets to their husbands or wives tax-free, this new policy adjustment means a married pair could pass on up to £5m in applicable assets.