The government has reversed its decision to expand inheritance tax to include farms, a move that has sparked strong opposition from farmers who feared it would hinder their ability to pass down their farms to their children. The decision to backtrack on the policy comes after a prolonged period of protests by farmers and concerns raised by some Labour backbenchers.
During last year’s Budget announcement, ministers unveiled plans to introduce a 20% tax on inherited agricultural assets valued over £1 million starting from April 2026. However, in a significant shift, the government has now revealed that the threshold will be raised from £1 million to £2.5 million, with the new regulations set to take effect in April 2026.
The increase in the threshold is expected to reduce the number of farms subject to higher inheritance tax payments, ensuring that only the largest estates will be impacted. Environment Secretary Emma Reynolds emphasized the importance of supporting farmers for the nation’s food security and environmental sustainability, stating that the changes aim to safeguard more typical family farms.
Emma Reynolds stated: “By raising the individual threshold to £2.5 million, couples with estates worth up to £5 million will no longer be liable to pay inheritance tax. This approach ensures that larger estates bear a greater tax burden, while we continue to support the farms and businesses that form the foundation of rural communities in Britain.”
NFU president Tom Bradshaw expressed relief at the announcement, noting that it would significantly reduce the tax obligations for many family farms. He highlighted the unexpected impact of changes to Agriculture Property Relief (APR) and Business Property Relief (BPR) introduced in the previous year’s budget, which had caused distress within the farming community.
Bradshaw remarked: “The adjustments to APR and BPR introduced in the Finance Bill were alarming for farmers, as the previous advice was to retain ownership of the farm until passing it on to the next generation for continued agricultural operations. The initial alterations resulted in a harsh tax regime, particularly affecting elderly and vulnerable individuals and their families. The NFU and its members remained steadfast in their stance.”
The Liberal Democrats urged the government to completely eliminate the “unfair tax,” as they believe many family farms will still struggle financially and may barely meet minimum wage standards.