The administration softens IHT proposal for farms

Government intentions to impose a duty on passed-down farming assets have been substantially altered, with the planned exemption limit being raised from £1m to £2.5m.

This concession follows an extended period of campaigns by the farming community and unease from some governing party parliamentarians.

Original Plan

At last year's financial statement, ministers stated they would start introducing a 20% tax on passed-on farmland and machinery worth more than £1m from April 2026.

In her first fiscal event in 2024, Chancellor Rachel Reeves stated she would be reversing the tax relief on farmland that had been in place since the 1980s.

The policy would have seen inherited agricultural assets worth over £1m taxed at 20%, 50% of the standard inheritance tax rate, generating an projected £520m per year by 2029.

Ministerial Comments

"We have paid close attention to family farms across the country and we are making changes today to shield more ordinary family farms."

"It's only fair that bigger holdings contribute more, while we back the agricultural enterprises that are the foundation of Britain's farming areas."

Sector Feedback

The Head of the National Farmers' Union welcomed the revision, stating it "exempts many family farms from the path of damaging tax."

The President of the Country Land and Business Association remarked: "The government should be commended for acknowledging the shortcomings in the first proposal and changing course."

He went on to say, "That said, this concession only mitigates the impact - it doesn't eradicate it entirely. Many family businesses will own enough high-value equipment and land to be assessed above the limit, yet still operate on such small profit margins that this levy remains crippling."

Cross-Party Response

In the 14 months since the initial proposal, there have been regular protests by farmers outside Parliament.

Some governing party politicians in rural areas have also voiced unease. At a recent legislative vote on the plan, a twelve backbenchers abstained and one opposed the measure.

The Conservative leader commented on a social platform: "This campaign isn't over. Other family businesses are still impacted by Labour's levy, and we will keep fighting until the tax is lifted from them too."

A opposition party spokesperson said: "It is completely unacceptable that family farmers have been put through over a year of anxiety and distress since the government first floated these plans."

The political party spokesperson remarked: "This calculated concession - whilst a step forward - does little to address the year of worry that farmers have faced... with British agriculture in a precarious state, the government must go further and abolish this callous farms tax."

Updated Policy

The government had contended that the original measure would protect smaller farms while deterring large estates from buying farmland as a way to reduce tax.

But, it has now stepped back from the first announcement raising the threshold level to £2.5m.

Alongside an provision which allows farmers to pass on assets to their husbands or wives without incurring tax, this new revised threshold means a couple could pass on up to £5m in applicable assets.