Ministers relaxes IHT plan for family farms

Treasury plans to tax inherited agricultural land have been substantially altered, with the originally announced exemption limit increasing from £1m to £2.5m.

This rethink follows an extended period of campaigns by agricultural workers and concern from some governing party MPs.

Background

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

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

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

Ministerial Comments

"We have listened closely to farmers across the country and we are adjusting our policy today to safeguard more everyday family farms."

"It's only fair that wealthier landowners shoulder more of the burden, while we support the family-run farms that are the foundation of Britain's farming areas."

Sector Feedback

The President of the National Farmers' Union welcomed the adjustment, commenting it "exempts many family farms from the path of harmful policy."

The Spokesperson of the Country Land and Business Association noted: "The government is to be praised for acknowledging the problems in the original policy and revising its stance."

He went on to say, "Nonetheless, this concession only reduces the harm - it doesn't eliminate it totally. Many family businesses will own enough costly assets and land to be priced above the threshold, yet still operate on such narrow returns that this tax burden remains prohibitive."

Parliamentary Reaction

In the 14 months since the first announcement, there have been ongoing demonstrations by farmers outside Parliament.

Some Labour MPs in the countryside have also expressed concern. At a recent legislative vote on the plan, a several backbenchers did not vote and one rebelled.

The opposition leader posted on social media: "This battle isn't over. Other family businesses are still affected by Labour's tax grab, and we will keep pushing until the tax is removed from them too."

A opposition party MP stated: "It is utterly inexcusable that family farmers have been put through over a year of anxiety and anguish since the government first announced these changes."

The Reform UK deputy leader said: "This cynical concession - whilst a step forward - does little to address the year of anxiety that farmers have faced... with British agriculture hanging by a thread, the government must go further and scrap this damaging farms tax."

Revised Details

The government had argued that the change would protect smaller farms while deterring wealthy investors from buying farmland as a tax avoidance scheme.

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

Alongside an exemption which allows farmers to pass on assets to their husbands or wives free of inheritance tax, this new government concession means a partnership could pass on up to £5m in qualifying assets.