The administration weakens IHT scheme for family farms

Government proposals to impose a duty on passed-down farmland have been substantially altered, with the originally announced threshold increasing from £1m to £2.5m.

This rethink follows months of demonstrations by the farming community and disquiet from some governing party MPs.

Background

At last year's financial statement, ministers said they would start imposing a inheritance charge on passed-on farming businesses worth more than £1m from the 2026 tax year.

In her first fiscal event in 2024, Chancellor Rachel Reeves stated she would be reversing the exemption on farmland that had been in place since the 1980s.

The move would have seen inherited farmland worth over £1m taxed at 20%, half the standard inheritance tax rate, yielding an projected £520m each year by 2029.

Ministerial Comments

"We have listened closely to farmers across the country and we are making changes today to safeguard more ordinary family farms."

"It's only just that larger estates pay a greater share, while we stand by the agricultural enterprises that are the backbone of Britain's countryside."

Sector Feedback

The Leader of the National Farmers' Union welcomed the adjustment, stating it "takes out many family farms from the eye of damaging storm."

The Head of the Country Land and Business Association said: "The government should be commended for recognising the problems in the original policy and changing course."

He continued, "That said, this revision only mitigates the impact - it doesn't eliminate it totally. Many family businesses will own enough expensive machinery and land to be priced above the limit, yet still operate on such small profit margins that this tax burden remains prohibitive."

Cross-Party Response

In the year-plus since the initial proposal, there have been ongoing demonstrations by farmers close to Parliament.

Some Labour MPs in farming constituencies have also expressed concern. At a recent parliamentary vote on the plan, a dozen backbenchers abstained and one rebelled.

The Conservative leader posted on a social platform: "This fight isn't over. Other family businesses are still affected by Labour's tax raid, and we will keep pushing until the tax is lifted from them too."

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

The political party spokesperson stated: "This cynical concession - whilst an improvement - does little to address the year of worry that farmers have faced... with British agriculture hanging by a thread, the government must go further and abolish this unfair farms tax."

Revised Details

The government had maintained that the change would safeguard smaller farms while preventing the very rich from buying farmland as a tax loophole.

But, it has now stepped back from the original proposal lifting the threshold level to £2.5m.

Coupled with an exemption which allows farmers to pass on assets to their partners tax-free, this new government concession means a married pair could pass on up to £5m in qualifying assets.