Ministers have increased the inheritance tax threshold for farms from £1m to £2.5m after months of protests and warnings that family farms were at risk. The U-turn, announced by the Department for Environment, Food and Rural Affairs just before Christmas, will apply from April when the tax is due to take effect.
The original plan, unveiled in Rachel Reeves’s 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”, sparking protests across the UK. The government now estimates that 85% of farms will pay no inheritance tax, up from 75% under the previous threshold.
The reversal follows intensive lobbying from a group of Labour MPs, including the prime minister’s parliamentary private secretary Jon Pearce. Prime Minister Sir Keir Starmer recently conceded at a select committee hearing that he had been told of terminally ill farmers planning to kill themselves to avoid the tax. The change means married couples can combine allowances to shield up to £5m, costing the exchequer £130m but still expected to raise nearly £300m annually.
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.” National Farmers’ Union president Tom Bradshaw hailed the announcement as a “huge relief”, adding: “I am thankful common sense has prevailed and government has listened.”
The climbdown is the latest policy U-turn by Chancellor Reeves, who previously abandoned cuts to winter fuel allowance and disability benefits after parliamentary backlash. Conservative leader Kemi Badenoch claimed the change as a win for the Tories’ campaign against the tax.
