Government u-turns on hated farming inheritance tax policy

Long-criticised changes to Inheritance Tax liabilities for farmers have been watered down by the government following more than a year of lobbying and a series of farmer protests.

The government today announced the level of the Agricultural & Business Property Relief threshold would be increased from its initial proposal of £1m to £2.5m, when the policy comes into force in April 2026.

The u-turn means the policy will now allow spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying Inheritance Tax, on top of existing allowances.

It marks a significant change to the changes to IHT previously announced in the 2024 budget, which rapidly became known as the ‘family farm tax’.

The policy would have limited 100% IHT relief to the first £1m of agricultural and business property, and was universally despised within the farming sector, which warned massive tax hikes could drive farmers out of business, or worse still to suicide. Protests against the tax reform have been widespread, with some as recent as this month, when farmers parked their tractors around Parliament Square in London. 

The concession brings the Treasury policy more in line with recommendations made in August by the Centre for the Analysis of Taxation, which found the tax could be “better targeting” and should do more to protect working farms.

CenTax recommended a ‘minimum share rule’ which would remove the relief for passive investors in farmland and other business assets, funding an extension of 100% relief for farmers and other business owners to £5m per estate.

The government said it had “listened to concerns of the farming community” and said it would now be going further to protect more farms and businesses “while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief”.

Read more: 

• Can Minette Batters’ farming review push Defra into action?

• Budget: Farmers express dismay at minimal changes to family farm tax

• Fairer Family Farming campaign launched to challenge IHT changes

• How NFU president Tom Bradshaw took over the baton from Minette Batters

“Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming,” said environment secretary Emma Reynolds.

“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 changes announced today will halve the number of estates claiming Agricultural Property Relief who are affected by the reforms, bringing it from 375 to 185, according to the government.

It had previously announced smaller tweaks to the policy in the autumn budget, where Chancellor Rachel Reeves announced the £1m threshold for IHT liabilities would now be transferable between spouses and civil partners in her budget, bringing it into line with wider Inheritance Tax policies.

’A huge relief to many’

The u-turn has been welcomed by the NFU, which has been a vocal critic of the “pernicious and cruel tax”.

“Today’s announcement, which sees the tax threshold raised from £1m to £2.5m, will come as a huge relief to many,” said NFU president Tom Bradshaw. “While there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside.”

He added that the union had spent the last 14 months campaigning to try and mitigate the worst impacts saying “the NFU and its members have stood strong for what we believed in”.

“I am thankful common sense has prevailed and government has listened,” he said.

He pointed to two constructive meetings with the Prime Minister and dozens of conversations with Reynolds which have led to “today’s changes which were so desperately needed”.

“It has been a very challenging year for many, but I hope we close 2025 with optimism for the future and an ability to work in partnership with all departments across government to see British farming thrive,” said Bradshaw.