The administration weakens inheritance tax proposal for farmland

Treasury plans to levy a charge on inherited farming assets have been substantially altered, with the proposed tax-free allowance increasing from £1m to £2.5m.

This concession comes after months of demonstrations by farmers and concern from some Labour parliamentarians.

Initial Announcement

At last year's Budget, ministers announced they would start introducing a inheritance charge on inherited farming businesses worth more than £1m from the 2026 tax year.

In her initial fiscal event in 2024, Chancellor Rachel Reeves declared she would be reversing the exemption on agricultural assets that had been in place since the 1980s.

The policy would have seen passed-down farmland worth over £1m subject to a levy at 20%, 50% of the standard inheritance tax rate, generating an projected £520m per year by 2029.

Official Announcement

"We have listened closely to farmers across the country and we are making changes today to safeguard more ordinary family farms."

"It's only right that wealthier landowners contribute more, while we stand by the farms and trading businesses that are the foundation of Britain's countryside."

Farming Response

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

The Head of the Country Land and Business Association said: "The government is to be praised for recognising the problems in the first proposal and changing course."

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

Cross-Party Response

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

Some governing party politicians in rural areas have also raised objections. At a recent legislative vote on the plan, a twelve backbenchers abstained and one rebelled.

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

A opposition party spokesperson said: "It is totally unforgivable that family farmers have been put through over a year of anxiety and distress since the government first floated these plans."

The political party deputy leader remarked: "This last-minute climbdown - 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 end this unfair agricultural levy."

Revised Details

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

However, it has now retreated from the original proposal raising the threshold level to £2.5m.

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