The UK government has announced a significant U-turn on its inheritance tax policy for farmers, raising the threshold at which the tax will apply to agricultural assets from £1 million to £2.5 million. This concession follows a widespread backlash from the farming community and rural MPs, who argued that the original proposal would make it difficult for family farms to be passed down through generations. The new rules are set to take effect in April 2026.
The initial policy, unveiled in the previous year's budget, would have seen inheritance tax levied on farm values exceeding £1 million at a rate of 20%, half the standard inheritance tax rate. This move was initially projected to generate £520 million annually by 2029. However, it was met with strong opposition, including protests from farmers across the UK and warnings that it would jeopardize the future of many family-run agricultural businesses. Concerns were so severe that Labour leader Keir Starmer acknowledged reports of terminally ill farmers considering suicide to avoid the tax.
Under the revised plan, spouses or civil partners will collectively be able to pass on up to £5 million in qualifying agricultural or business assets without incurring inheritance tax, in addition to existing allowances. The government, through the Department for Environment, Food and Rural Affairs (Defra), stated that it "listened to concerns of the farming community and businesses about the reforms" and is "going further to protect more farms and businesses." This adjustment is expected to reduce the number of estates affected by the tax from 375 to 185 and will be introduced to the Finance Bill in January. While welcomed by farming unions as a "huge relief," some, like the Liberal Democrats, have called for the complete abolition of the farm inheritance tax. The climbdown is estimated to cost the exchequer £130 million, but the changes are still anticipated to raise nearly £300 million a year.