The administration scales back IHT plan for farmland

Treasury proposals to impose a duty on passed-down agricultural land have been watered down, with the originally announced tax-free allowance being raised from £1m to £2.5m.

This concession is a response to months of demonstrations by the farming community and disquiet from some governing party MPs.

Original Plan

At last year's Budget, the Chancellor announced they would start applying a 20% tax on inherited farming businesses worth more than £1m from the 2026 tax year.

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

The measure would have seen passed-down farmland worth over £1m subject to a levy at 20%, half the standard inheritance tax rate, generating an projected £520m annually by 2029.

Government Statement

"We have paid close attention to family farms across the country and we are adjusting our policy today to safeguard more ordinary family farms."

"It's only right that larger estates contribute more, while we stand by the family-run farms that are the lifeblood of Britain's countryside."

Sector Feedback

The Leader of the National Farmers' Union welcomed the change, commenting it "takes out many family farms from the eye of pernicious tax."

The Spokesperson of the Country Land and Business Association said: "The government should be commended for acknowledging the flaws in the initial plan and changing course."

He continued, "That said, this announcement only reduces the harm - it doesn't eliminate it totally. Many family businesses will own enough high-value equipment and land to be priced above the limit, yet still operate on such thin profit margins that this tax burden remains crippling."

Parliamentary Reaction

In the year-plus since the first announcement, there have been frequent protests by farmers outside Parliament.

Some backbenchers in the countryside have also expressed concern. At a recent division in the Commons on the plan, a twelve backbenchers withheld their support and one opposed the measure.

The opposition leader commented on a social platform: "This battle isn't done. Other family businesses are still harmed by Labour's levy, and we will keep campaigning until the tax is removed from them too."

A Liberal Democrat MP stated: "It is completely unacceptable that family farmers have been put through over a year of uncertainty and anguish since the government first proposed these plans."

The political party deputy leader remarked: "This calculated climbdown - whilst an improvement - does little to address the year of worry that farmers have faced... with British agriculture under severe pressure, the government must go further and scrap this damaging farms tax."

Updated Policy

The government had contended that the original measure would protect smaller farms while preventing large estates from buying farmland as a tax avoidance scheme.

However, it has now rowed back from the initial plan raising the tax-free amount to £2.5m.

Combined with an allowance which allows farmers to pass on assets to their partners without incurring tax, this new policy adjustment means a married pair could pass on up to £5m in applicable assets.