UK Government Raises Threshold for Agricultural Inheritance Tax, Easing Impact on Family Farms
The UK government has raised the threshold for inheritance tax on qualifying agricultural assets from £1 million to £2.5 million. Under the revised policy, couples can pass on up to £5 million tax-free due to a spousal exemption, with any value above the threshold facing a 50% relief.
Originally, the plan was to introduce a 20% tax on inherited agricultural assets over £1 million starting in April 2026, replacing the 100% relief that had been in place since the 1980s. However, following consultations and feedback, Environment Secretary Emma Reynolds announced the changes to better listen to farmers and protect ordinary family farms while ensuring larger estates contribute more.
Farmers' groups such as the National Farmers' Union (NFU) and the Country Land and Business Association (CLA) welcomed the adjustment but cautioned that many family businesses might still exceed the new threshold or struggle with affordability.
Parliamentary reactions were mixed; about a dozen backbench Labour MPs abstained, Markus Campbell-Savours voted against and was subsequently suspended. Some politicians described the timing of the policy changes as bizarre.
The Treasury stated that the threshold increase will cost around £130 million and indicated there are no plans to abandon the policy entirely. Officials emphasized that the principle of reform remains, with smaller farms set to receive support.
This adjustment is among several government U-turns since July 2024, joining reversals on winter fuel payments and welfare cuts. With the new threshold, the number of estates expected to pay higher taxes in 2026/27 decreases from around 2,000 under the original plan to approximately 1,100.
