Ministers have increased the inheritance tax threshold for farmland 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 takes effect.
The original plan, announced 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. It was expected to raise £520m annually by 2029. Critics labelled it a 'family farm tax', sparking protests across the UK.
The reversal follows pressure from a group of Labour MPs who argued privately against the tax, including the prime minister's parliamentary private secretary, Jon Pearce. Nearly a dozen MPs were involved, including Andrew Pakes, Laura Kyrke-Smith, Callum Anderson, Alistair Strathern, and Helena Dollimore. Markus Campbell-Savours, a Labour MP who voted against the tax, remains suspended from the party.
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.' The change means 85% of farms will pay no inheritance tax, up from 75%, and the number of affected estates next year will fall from 375 to 185.
The climbdown will cost the exchequer £130m, but the changes are still expected to raise nearly £300m a year. Married couples with estates up to £5m will pay no inheritance tax, as they can combine two £2.5m allowances.
National Farmers' Union president Tom Bradshaw hailed the announcement as a 'huge relief', saying 'common sense has prevailed'. Conservative leader Kemi Badenoch called it a big win for the Tories' campaign against the tax.
