Ministers have increased the inheritance tax threshold for farmland from £1m to £2.5m, following months of protests and warnings that family farms were at risk. The change, announced by the Department for Environment, Food and Rural Affairs (Defra) just before Christmas, will take effect from April.
The original plan, unveiled by Chancellor Rachel Reeves in her first Budget last year, would have taxed inherited agricultural assets worth more than £1m at 20%, half the standard inheritance tax rate. Critics labelled it a 'family farm tax', arguing it would prevent many farmers from passing on their farms to their children.
The U-turn follows intensive lobbying from a group of Labour MPs, who made their case to Treasury and environment ministers as well as Prime Minister Sir Keir Starmer. Downing Street sources indicated that backbenchers had 'built a strong evidence base' against the tax, including Starmer's parliamentary private secretary, Jon Pearce.
Prime Minister Starmer conceded at a select committee hearing last week that he had been told of terminally ill farmers planning to kill themselves to avoid the tax. The government source said the change means 85% of farms will not pay inheritance tax, up from 75%, with the number of affected estates next year falling from 375 to 185.
The climbdown is the latest policy U-turn by Reeves, following abandoned plans to axe winter fuel allowance for most pensioners and mooted cuts to disability benefits. The change will cost the exchequer £130m, but the reforms are still expected to raise nearly £300m a year.
Environment Secretary Emma Reynolds said the government had 'listened closely to farmers across the country' and was making changes to 'protect more ordinary family farms'. National Farmers' Union president Tom Bradshaw hailed the announcement as a 'huge relief to many', thanking the government for listening.
