Government modifies IHT policy for family farms

Treasury intentions to impose a duty on passed-down farmland have been significantly revised, with the originally announced tax-free allowance being raised from £1m to £2.5m.

This climbdown follows an extended period of demonstrations by farmers and concern from some governing party backbenchers.

Original Plan

At last year's financial statement, the government announced they would start introducing a one-fifth levy on passed-on farming businesses worth more than £1m from April 2026.

In her initial Budget in 2024, Chancellor Rachel Reeves stated she would be ending the tax relief on farmland that had been in place since the 1980s.

The move would have seen passed-down agricultural assets worth over £1m taxed at 20%, half the standard inheritance tax rate, generating an projected £520m annually by 2029.

Official Announcement

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

"It's only right that larger estates pay a greater share, while we stand by the farms and trading businesses that are the backbone of Britain's farming areas."

Farming Response

The President of the National Farmers' Union praised the revision, commenting it "exempts many family farms from the eye of pernicious tax."

The Head of the Country Land and Business Association noted: "The government should be commended for recognising the shortcomings in the first proposal and changing course."

He continued, "Nonetheless, this concession only reduces the harm - it doesn't eradicate it totally. Many family businesses will own enough expensive machinery and land to be valued above the threshold, yet still operate on such thin returns that this tax burden remains unaffordable."

Parliamentary Reaction

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

Some Labour MPs in rural areas have also voiced unease. At a recent legislative vote on the plan, a several backbenchers abstained and one rebelled.

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

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

The political party spokesperson stated: "This calculated climbdown - whilst better than nothing - does little to address the year of worry that farmers have faced... with British agriculture in a precarious state, the government must go further and end this damaging farms tax."

New Terms

The government had contended that the change would safeguard smaller farms while deterring large estates from buying farmland as a tax loophole.

However, it has now retreated from the initial plan increasing the threshold level to £2.5m.

Alongside an provision which allows farmers to pass on assets to their spouses without incurring tax, this new revised threshold means a married pair could pass on up to £5m in eligible assets.