The UK government has performed a significant U-turn on its controversial inheritance tax plans for farms, dramatically raising the threshold at which the levy applies following months of intense protests and political pressure.
A Budget Proposal That Sparked Rural Anger
In her first budget last year, Chancellor Rachel Reeves announced plans to tax inherited agricultural assets valued at more than £1 million at a rate of 20%. The policy was immediately branded a "family farm tax" by critics, who argued it would cripple the ability of farming families to pass their businesses down through generations.
The announcement triggered demonstrations across the UK, with farmers warning it placed the future of countless family-run operations in jeopardy. The backlash reached the highest levels of government, with Prime Minister Sir Keir Starmer revealing at a select committee hearing that he had been told of farmers with terminal illnesses considering suicide to avoid the tax burden on their families.
The Government's Concession and New Threshold
In a statement released quietly just before Christmas, the Department for Environment, Food and Rural Affairs (Defra) confirmed the major policy shift. From April, when the tax was due to take effect, the threshold will be increased to £2.5 million.
This means inheritance tax will now only apply to farms and agricultural businesses worth over £2.5m, not the originally proposed £1m. For married couples, the change is even more significant, as they can combine their allowances. This effectively means estates valued at up to £5 million will now pay no inheritance tax.
The government stated it had "listened to concerns of the farming community and businesses about the reforms." It added that while maintaining the principle that the most valuable assets should not receive unlimited relief, it was "going further to protect more farms and businesses."
Impact and Reaction from the Farming Community
The raised threshold will substantially reduce the number of estates liable for the tax. Government figures estimate that only 185 estates will be affected next year, down from an estimated 375 under the original £1m plan.
Environment Secretary Emma Reynolds said: "We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms. 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."
The announcement was met with relief by industry leaders. Tom Bradshaw, President of the National Farmers' Union (NFU), hailed it as a "huge relief to many" that would "greatly" reduce the tax burden. "I am thankful common sense has prevailed and government has listened," he stated, highlighting constructive meetings with the Prime Minister and the Defra Secretary.
The political fallout from the original proposal was stark. Markus Campbell-Savours, the Labour MP for Penrith and Solway, was suspended from the party earlier this month for voting against the tax, underscoring the deep unease in rural constituencies.
The Labour Rural Research Group, representing Labour MPs in rural seats, also welcomed the change. Its chair, Jenny Riddell-Carpenter, MP for Suffolk Coastal, said it meant "fewer families facing impossible choices, and greater certainty that farms can continue to operate, invest, and contribute to our rural economy."
