UK (Parliament Politics Magazine) – UK Government increases inheritance tax relief for farmers to £2.5m, reducing the number of affected estates from 2,000 to 1,100 after policy review.
As reported by Patrick Galbraith of The Telegraph, British Prime Minister Sir Keir Starmer has announced a major reversal, raising the inheritance tax threshold for farmers to £2.5m following pressure from rural communities, effective from April.
What did the UK Government announce about inheritance tax for farmers?
The government has revealed a significant change to its inheritance tax policy. The policy, first revealed last year, had raised concern among farmers who warned it could affect generational transfers of their farms.
In a statement released today, the government said,
“The government has today announced that the level of the agricultural and business property reliefs threshold will be increased from £1m to £2.5m when it is introduced in April 2026. This allows spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances.
Following the reforms to agricultural and business property reliefs announced at budget 2024, the government has listened to concerns of the farming community and businesses about the reforms.”
It added,
“Having carefully considered this feedback, the government is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief. The change will be introduced to the Finance Bill in January and will apply from 6 April.”
What did Emma Reynolds say about the inheritance tax change?
Environment Secretary Emma Reynolds has unveiled changes to inheritance tax rules, describing them as adjustments rather than a U-turn.
She said,
“Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming. We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.
We are increasing the individual threshold from £1m to £2.5m which means couples with estates of up to £5m will now pay no inheritance tax on their estates.”
Ms Reynolds added,
“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.”
How did the opposition parties respond to the farm inheritance tax U-turn?
The Conservative Party has welcomed the inheritance tax U-turn, criticizing the Budget 2024 proposal as a “family farm tax” and campaigning against it more vigorously than almost any other Labour policy.
Victoria Atkins, the shadow environment secretary, said,
“At long last, Labour has snuck out a partial u-turn on their vindictive Family Farm Tax. It is too late for some, however.”
She added,
“Businesses and lives have been lost. Rural communities will not forget the distress, pain and panic this government has caused them.”
Tory leader Kemi Badenoch has responded to the farm inheritance tax U-turn in a social media post, calling it, effectively, a personal victory.
She posted on X,
“This is a huge u-turn by the government and a big win for the Conservative Party’s campaign against Labour’s Family Farm Tax. Earlier this year, I was told to drop our campaign, that there weren’t many votes in it, there weren’t many farmers, and people assumed they were wealthy enough to cope anyway. I ignored the advice and kept campaigning.”
Ms Badenoch added,
“Farmers are exactly the kind of people Conservatives stand up for: hard-working, responsible, family-focused, and committed to passing something on to the next generation. That feels especially important at Christmas, a time when family, care for others, and responsibility are at the heart of what we celebrate.”
Reform UK deputy leader Richard Tice has joined farmers in opposing the farm inheritance tax, describing today’s change as “better than nothing” while warning that many estates still face “crippling bills.”
He said,
“Labour’s tax raid on family farms has already been a disaster for the sector, plunging countless farmers into despair, with heartbreaking reports of some taking their own lives in order to save their farms for future generations.”
Mr Tice added,
“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. Even with the raised threshold, many family farms will still face crippling bills. With British agriculture hanging by a thread, the government must go further and abolish this callous farms tax.”
Tim Farron, environment spokesperson for the Liberal Democrats, says the reversal on farm inheritance tax marks a victory for the party’s campaigning efforts.
He said,
“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.”
Mr Farron stated that Liberal Democrats led the opposition to last year’s family farm tax, standing with rural communities throughout the campaign.
He added,
“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.”
What did the NFU and Labour Rural MPs say about the farm inheritance tax U-turn?
The National Farmers’ Union has expressed support for the farm inheritance tax U-turn, calling it a victory for common sense and a relief for farming families.
The NFU president, Tom Bradshaw, said,
“Changes to agriculture property relief (APR) and business property relief (BPR) announced in last year’s budget came as a huge shock to the farming community. Until that moment, the best tax planning advice was to hold on to your farm until death and pass it on to the next generation who could continue to run a viable farming, food producing business.”
He added,
“The original changes to APR and BPR, contained within the finance bill, resulted in a pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm. The NFU and its members have stood strong for what we believed in. I am thankful common sense has prevailed and government has listened.”
MPs from the Labour Rural Research Group insist their lobbying persuaded ministers to act, resulting in the farm tax U-turn. The LRRG represents rural constituencies and claims credit for influencing the change.
Jenny Riddell-Carpenter, who represents Suffolk Coastal, said,
“This wouldn’t have been possible if the government hadn’t listened to rural Labour MP colleagues in the Labour Rural Research Group, to farmers, and to industry. This move shows the government is fully committed to backing working farms and our countryside – after years of successive failures under the Conservative government that brought farming to its knees.”
LRRG’s vice chair, James Naish, said,
“Rural colleagues and I have never disputed the very strong argument about the need to tackle land banking, or that there are some very wealthy farmers out there. But we have to make sure that smaller farmers with low profitability can continue to function by producing food, protecting nature and supporting flood defence schemes that the nation needs to thrive. This announcement will do that.”
What is inheritance tax in the UK?
The UK’s Inheritance Tax is a tax on the value of a person’s estate (property, money, and possessions) that exceeds a tax-free threshold when they die.
It was introduced by Prime Minister Margaret Thatcher’s Conservative government through the Finance Act 1986. This tax replaced the previous Capital Transfer Tax, reverting to a system more similar to the older Estate Duty, focusing primarily on wealth transferred at death rather than on lifetime gifts.
Which countries have an inheritance tax?
Countries with inheritance or estate tax:
- Japan: Inheritance tax, top rate 55% (world’s highest).
- South Korea: Inheritance tax, top rate 50%.
- France: Inheritance tax, top rate 45% (up to 60% for non-relatives).
- United States: Estate tax, top federal rate 40% (state-level taxes may apply).
- Germany: Inheritance tax, top rate 50% (progressive rates & exemptions).
- Belgium: Inheritance tax, regional tax; top rate up to 80%.