Government Increases Inheritance Tax Threshold on Farmland, Easing Burden on Family Estates
The UK government has announced an increase in the inheritance tax threshold on inherited farmland, raising it from £1 million to £2.5 million. Above this threshold, a 20% tax will apply, and the previous 100% relief on such assets will end. Environment Secretary Emma Reynolds made the announcement shortly after MPs left Parliament for the Christmas recess, stating that the government had listened to farmers' concerns.
Couples can now pass on up to £5 million in qualifying assets tax-free due to a spouse exemption. For assets above the threshold, a 50% relief will apply to the remaining estate value. Under the new proposal, the estimated number of estates paying more in 2026/27 is projected to fall from about 2,000 to approximately 1,100. The Treasury estimates the cost of changing the thresholds at around £130 million, but the policy will not be scrapped.
Reactions from farming bodies were largely supportive. The National Farmers' Union welcomed the changes, while the Country Land and Business Association praised the adjustment, though some concerns remain that many family businesses above the new threshold will still face a burdensome tax.
Politically, the decision drew mixed responses. Labour MPs largely abstained on the vote; Markus Campbell-Savours voted against and was suspended from the party, now sitting as an independent. John Whitby expressed support for the climbdown. A Labour source described the timing of the announcement as bizarre.
This amendment follows the 2024 Budget proposal to reverse the 100% relief and tax inherited agricultural assets above £1 million at 20% starting April 2026. The original intent was to raise funds and curb investment in farmland, but this represented a significant shift.
The change is part of a series of government reversals since July 2024, including previous U-turns on winter fuel payments and welfare cuts. The government emphasized that the principle remains that wealthier estates will pay their fair share, while smaller farms receive needed help.
