In a significant policy reversal, the Labour government has announced it will substantially increase the threshold for inheritance tax relief following sustained protests from farmers and rural communities.
Details of the Revised Policy
The Treasury and the Department for Food and Rural Affairs confirmed on Tuesday that the threshold for Agricultural and Business Property Reliefs will be raised to £2.5 million, up from the originally proposed £1 million. The new rules are scheduled to take effect in April 2026.
This adjustment means that spouses or civil partners will be able to pass on estates valued at up to £5 million without incurring additional inheritance tax, on top of existing allowances. The government stated it had "carefully considered" feedback and was "going further to protect more farms and businesses."
As a result of this U-turn, the number of family estates expected to face higher inheritance tax bills has been nearly halved. The government now estimates only 1,100 estates will be eligible, down from 2,000 under the initial plan.
A Year of Backlash and Stark Warnings
The controversial reforms to Agricultural Property Relief (APR) were first introduced in Chancellor Rachel Reeves’ inaugural Autumn Budget, sparking numerous protests in Westminster and across the countryside.
The depth of concern was starkly revealed earlier this month when Prime Minister Sir Keir Starmer appeared before the liaison committee. Cat Smith, Labour chairwoman of the Commons procedure committee, asked Starmer if he was aware that some terminally ill farmers were "actively planning to expedite their own deaths" to avoid the tax changes.
Starmer responded, "I’ve had discussions with a number of individuals who have drawn all manner of things to my attention." This exchange highlighted the extreme anxiety the original policy had generated within the farming community.
Broader Impact on Family Businesses
The policy shift comes against a backdrop of widespread worry among the UK's family business owners. A poll conducted ahead of the November Budget found that nearly two-thirds of the nation's 4.8 million family businesses were concerned about their future, following successive wage and tax increases.
Commenting on the revised policy, Environment Secretary Emma Reynolds 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."
She 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."
This dramatic U-turn marks a major concession by the Labour government, acknowledging the fierce opposition its original tax plans had ignited in vital rural and business sectors.
