Government Announces Major U-Turn On Farmers Inheritance Tax
3 min read
The Labour government has announced a significant climbdown on its policy of inheritance tax for farmers following a major backlash.
The Department for the Environment, Food and Rural Affairs (DEFRA) announced on Tuesday that it was raising the threshold at which farming estates will be affected by inheritance tax from April 2026, from £1m to £2.5m.
As a result, the number of estates that are expected to be affected by the reforms has fallen from 375 to 185, the department said.
Under the changes, the government will also allow spouses and civil partners to pass on estates and agricultural assets worth up to £5m before paying tax.
The government's original policy of a £1m threshold triggered backlash from rural groups and opposition parties, who warned that it would result in some farms going out of business. Farmers have staged numerous protests outside Parliament since the initial policy was announced.
Many Labour MPs in rural constituencies also expressed unhappiness with the move.
In a statement, Environment Secretary Emma Reynolds said: “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.
“We have listened closely to farmers across the country, and we are making changes today to protect more ordinary family farms. We are increasing the individual threshold from £1m to £2.5m, which means couples with estates of up to 5m will now pay no inheritance tax on their estates.
“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.”
Tom Bradshaw, head of the National Farmers Union (NFU), said the organisation had spent "the past 14 months campaigning and lobbying to try and mitigate the worst impacts of the proposals", and thanked Labour MPs who had raised the concerns of farmers with ministers.
“I am thankful common sense has prevailed and government has listened," he said.
"I have had two very constructive meetings with Prime Minister Sir Keir Starmer and dozens of conversations with Defra Secretary of State Emma Reynolds. She has played a key role underlining the human impact of this tax. These conversations have led to today’s changes, which were so desperately needed."
Tory shadow environment secretary Victoria Atkins said the watering down of the policy had come "too late" for some farms.
"Businesses and lives have been lost. Rural communities will not forget the distress, pain and panic this government has caused them," she said.
Tim Farron, the Liberal Democrat environment spokesperson, welcomed the "hard-won" concession but said the planned inheritance tax should be ditched in full.
"This is about justice and security — if we undermine British farming, then we also undermine our ability to provide us with the food we need to keep us secure in an uncertain world. "Yet many family farms will still find themselves financially crippled and barely making the minimum wage."
