The government has scaled back proposals to tax inherited farmland, increasing the planned threshold from £1 million to £2.5 million.
This revision follows months of protests by farmers and expressions of concern from some Labour backbenchers.
During last year’s Budget announcement, ministers stated their intention to impose a 20% tax on inherited agricultural assets exceeding £1 million, effective April 2026, thereby ending the 100% tax relief that had been in place since the 1980s.
In a statement released after MPs had adjourned for the Christmas recess, Environment Secretary Emma Reynolds commented: “We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.”
“It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities,” she added.
Tom Bradshaw, head of the National Farmers’ Union, welcomed the change, stating on BBC Radio 5 Live that it “takes out many family farms from the eye of a pernicious storm.”
Gavin Lane, president of the Country Land and Business Association, acknowledged that “the government deserves credit for recognising the flaws in the original policy and changing course.”
“However, this announcement only limits the damage – it doesn’t eradicate it entirely,” Lane continued.
“Many family businesses will own enough expensive machinery and land to be valued above the threshold, yet still operate on such narrow profit margins that this tax burden remains unaffordable.”
Ben Ardern, a farmer from Derbyshire, described the adjustment as “a step in the right direction” when speaking with the BBC.
He urged the government to “drop it [the tax] for family farms… and just tax the people who have got the money to tax.”
“The big corporations who have just buried money into land – they’re not farmers, they have just done it to avoid tax. Farmers haven’t bought land to avoid tax, we’ve bought land to farm it and grow food.”
In the 14 months since the initial proposal was announced, farmers have held regular protests outside Parliament.
Several Labour MPs representing rural constituencies have also voiced their concerns. During a recent parliamentary vote on the plan, a dozen backbenchers abstained, and one, Markus Campbell-Savours, voted against it.
Campbell-Savours was subsequently suspended for voting against the government, leading him to now serve as an independent MP.
John Whitby, a Labour MP from the Rural Research Group of backbenchers, hailed the government’s reversal on inheritance tax as “fantastic news.”
However, a Labour source characterized the timing of the change as “bizarre.”
They added that many MPs would be displeased, as “they were made to vote for it so recently.”
Conservative leader Kemi Badenoch stated on social media: “This fight isn’t finished.”
“Other family businesses are still affected by Labour’s tax raid, and we will keep pushing until the tax is lifted from them too.”
Liberal Democrat spokesperson Tim Farron MP commented: “It is utterly inexcusable that family farmers have been put through over a year of uncertainty and anguish since the government first announced these changes.”
“We demand that the government scraps this unfair tax in full and if they refuse to, Liberal Democrats will submit amendments in the new year to bring it down.”
Reform UK deputy leader Richard Tice stated: “This cynical climbdown – whilst better than nothing – does little to address the year of anxiety that farmers have faced in planning to protect their livelihoods… with British agriculture hanging by a thread, the government must go further and abolish this callous farms tax.”
In her first Budget of 2024, Chancellor Rachel Reeves announced the reversal of the 100% inheritance tax relief on agricultural assets that had been in place since the 1980s.
The measure would have taxed inherited agricultural assets worth over £1 million at 20%, half the standard inheritance tax rate, generating an estimated £520 million annually by 2029.
The government had argued that the change would safeguard smaller farms while preventing wealthy investors from exploiting farmland as a tax loophole.
However, it has now retreated from the original proposal, raising the threshold to £2.5 million.
Coupled with an exemption allowing farmers to transfer assets to their spouses tax-free, this new government concession means a couple could pass on up to £5 million in qualifying assets without incurring tax liabilities.
Above the threshold, a 50% relief will be applied to the remaining assets.
According to government estimates, the number of estates in the UK expected to pay more inheritance tax in 2026/27 will decrease from approximately 2,000 under the original plans to 1,100 under the revised proposal.
A Treasury source indicated that adjusting the thresholds would cost the government £130 million but clarified that there were “no plans” to scrap the policy entirely.
“The principle of reforming the tax system remains,” the source stated. “It’s right that the wealthiest estates pay their fair share, but smaller farms will get help.”
This climbdown is the latest in a series of policy reversals undertaken by the government since being elected in July 2024.
Earlier this year, the government eased cuts to winter fuel payments and backtracked on plans to make £5bn of cuts to the welfare bill.