Ministers modifies inheritance tax scheme for farms

Ministerial plans to levy a charge on passed-down farmland have been significantly revised, with the proposed tax-free allowance rising from £1m to £2.5m.

This climbdown comes after months of campaigns by agricultural workers and unease from some governing party backbenchers.

Initial Announcement

At last year's Budget, the government said they would start imposing a 20% tax on inherited farmland and machinery worth more than £1m from the 2026 tax year.

In her first Budget in 2024, Chancellor Rachel Reeves declared she would be scrapping the favourable treatment on farmland that had been in place since the 1980s.

The move would have seen inherited farmland worth over £1m taxed at 20%, half the standard inheritance tax rate, yielding an estimated £520m each year by 2029.

Government Statement

"We have paid close attention to farmers across the country and we are introducing modifications today to protect more typical family farms."

"It's only just that wealthier landowners contribute more, while we stand by the family-run farms that are the backbone of Britain's rural communities."

Farming Response

The Head of the National Farmers' Union applauded the revision, stating it "takes out many family farms from the eye of pernicious storm."

The Spokesperson of the Country Land and Business Association noted: "The government is to be praised for identifying the flaws in the initial plan and adjusting its approach."

He continued, "Nonetheless, this concession only limits the damage - it doesn't remove it completely. Many family businesses will own enough expensive machinery and land to be valued above the threshold, yet still operate on such small returns that this levy remains unaffordable."

Cross-Party Response

In the 14 months since the initial proposal, there have been ongoing demonstrations by farmers close to Parliament.

Some backbenchers in the countryside have also voiced unease. At a recent parliamentary vote on the plan, a dozen backbenchers did not vote and one rebelled.

The Conservative leader posted on social media: "This fight isn't done. Other family businesses are still impacted by Labour's tax raid, and we will keep fighting until the tax is lifted from them too."

A Liberal Democrat MP stated: "It is completely unacceptable that family farmers have been put through over a year of worry and anguish since the government first floated these plans."

The political party spokesperson stated: "This calculated climbdown - whilst an improvement - 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 abolish this callous agricultural levy."

Revised Details

The government had maintained that the policy would safeguard smaller farms while stopping the very rich from buying farmland as a way to reduce tax.

However, it has now rowed back from the initial plan lifting the tax-free amount to £2.5m.

Coupled with an provision which allows farmers to pass on assets to their spouses free of inheritance tax, this new revised threshold means a couple could pass on up to £5m in applicable assets.