Ministers dilutes inheritance tax plan for agricultural businesses

Ministerial proposals to tax passed-down agricultural land have been significantly revised, with the proposed exemption limit being raised from £1m to £2.5m.

This rethink comes after an extended period of campaigns by agricultural workers and unease from some Labour backbenchers.

Background

At last year's financial statement, the Chancellor said they would start applying a inheritance charge on inherited farmland and machinery worth more than £1m from the 2026 tax year.

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

The measure would have seen passed-down farmland worth over £1m taxed at 20%, 50% of the standard inheritance tax rate, yielding an projected £520m each year by 2029.

Government Statement

"We have paid close attention to farmers across the country and we are making changes today to shield more ordinary family farms."

"It's only fair that bigger holdings shoulder more of the burden, while we support the agricultural enterprises that are the lifeblood of Britain's countryside."

Farming Response

The Head of the National Farmers' Union applauded the change, saying it "exempts many family farms from the threat of pernicious storm."

The Spokesperson of the Country Land and Business Association said: "The government deserves credit for recognising the problems in the first proposal and changing course."

He went on to say, "However, this announcement only limits the damage - it doesn't eliminate it entirely. Many family businesses will own enough high-value equipment and land to be priced above the limit, yet still operate on such narrow profit margins that this tax burden remains prohibitive."

Parliamentary Reaction

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

Some governing party politicians in the countryside have also voiced unease. At a recent legislative vote on the plan, a several backbenchers withheld their support and one rebelled.

The opposition leader posted on social media: "This campaign isn't done. Other family businesses are still affected by Labour's levy, and we will keep fighting until the tax is scrapped from them too."

A Liberal Democrat spokesperson said: "It is utterly inexcusable that family farmers have been put through over a year of uncertainty and anguish since the government first announced these plans."

The Reform UK spokesperson said: "This last-minute 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 damaging agricultural levy."

New Terms

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

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

Coupled with an allowance which allows farmers to pass on assets to their spouses tax-free, this new government concession means a couple could pass on up to £5m in applicable assets.