Ministers waters down IHT proposal for agricultural businesses

Treasury plans to tax passed-down agricultural land have been substantially altered, with the originally announced threshold being raised from £1m to £2.5m.

This rethink is a response to an extended period of demonstrations by the farming community and disquiet from some governing party backbenchers.

Original Plan

At last year's financial statement, the Chancellor stated they would start introducing a 20% tax on inherited farming businesses worth more than £1m from the 2026 tax year.

In her initial fiscal event in 2024, Finance Minister Rachel Reeves stated she would be scrapping the tax relief on agricultural assets that had been in place since the 1980s.

The move would have seen inherited agricultural assets worth over £1m subject to a levy at 20%, 50% of the standard inheritance tax rate, generating an projected £520m per year by 2029.

Government Statement

"We have paid close attention to the farming community across the country and we are adjusting our policy today to shield more typical family farms."

"It's only just that larger estates shoulder more of the burden, while we back the agricultural enterprises that are the lifeblood of Britain's countryside."

Industry Reaction

The Head of the National Farmers' Union applauded the change, stating it "removes many family farms from the eye of harmful storm."

The Spokesperson of the Country Land and Business Association remarked: "The government deserves credit for acknowledging the problems in the original policy and adjusting its approach."

He continued, "Nonetheless, this concession only limits the damage - it doesn't eliminate it completely. Many family businesses will own enough costly assets and land to be priced above the limit, yet still operate on such narrow returns that this charge remains crippling."

Political Fallout

In the year-plus since the initial proposal, there have been frequent demonstrations by farmers near Parliament.

Some governing party politicians in rural areas have also expressed concern. At a recent parliamentary vote on the plan, a twelve backbenchers abstained and one rebelled.

The Conservative leader commented on a social platform: "This fight isn't finished. Other family businesses are still affected by Labour's tax grab, and we will keep fighting until the tax is removed from them too."

A opposition party MP said: "It is totally unforgivable that family farmers have been put through over a year of uncertainty and anguish since the government first proposed these plans."

The Reform UK spokesperson said: "This last-minute U-turn - whilst an improvement - does little to address the year of anxiety that farmers have faced... with British agriculture in a precarious state, the government must go further and end this unfair agricultural levy."

New Terms

The government had argued that the change would safeguard smaller farms while preventing large estates from buying farmland as a tax avoidance scheme.

However, it has now stepped back from the initial plan lifting the threshold level to £2.5m.

Combined with an exemption which allows farmers to pass on assets to their husbands or wives tax-free, this new government concession means a couple could pass on up to £5m in applicable assets.