Ministers raise inheritance tax threshold for farmers in climbdown after protests

The UK Government will raise the inheritance tax relief threshold for farmers from £1 million to £2.5 million in a climbdown following months of protest.

The change to the reforms initially unveiled at Labour’s first Budget last year comes after ministers “listened to concerns” of the farming community and businesses, the Department for Environment, Food and Rural Affairs (Defra) said on Tuesday.

The original Treasury plans to raise money as farmers pass their businesses from generation to generation triggered protests with tractors outside Parliament and criticism from some Labour MPs in rural seats.

And Baroness Minette Batters, the former head of the National Farmers’ Union (NFU) who led an independent review for the UK Government, warned that the proposals had led to farmers contemplating suicide to avoid the tax changes.

A farmer whose father killed himself the day before last October’s budget amid worries over the inheritance tax changes said the Government’s climbdown is “the best Christmas present for a lot of farmers”, but he accused ministers of “a complete lack of understanding and compassion” towards rural communities.

Jonathan Charlesworth, who found his father John Philip Charlesworth dead in a barn on their farm in Silkstone, Barnsley, told the Press Association: “It’s a welcome U-turn that won’t bring back the lives lost over the last year or so due to the anxiety caused, but will hopefully prevent a flood of suicides running up to the commencement in April.”

He also said: “The flip side is, it should have been researched and put out to review before any announcement was made.”

The higher threshold, which will take effect in April, will allow spouses or civil partners to pass on up to £5 million in qualifying agricultural or business assets between them before paying inheritance tax – on top of existing allowances, Defra said.

Above that allowance, farmers will get 50% relief on qualifying assets and will pay a reduced effective rate of up to 20%, rather than the standard 40%.

The number of estates facing higher inheritance tax will be reduced from around 2,000 under to original plans to up 1,100, hitting only the largest farms, according to the UK Government.

Farmers currently do not pay inheritance tax on agricultural and business assets which they pass on.

Under Labour’s initial proposal, the full 100% relief was to be restricted to the first £1 million of property.

The plans caused consternation among some Labour backbenchers, with Penrith and Solway MP Markus Campbell-Savours losing the party whip earlier this month for voting against them.

Prime Minister Sir Keir Starmer last week told the Liaison Committee he understood farmers’ concerns, but defended the “sensible reform”.

The Prime Minister has changed course on a number of policies this year, with a U-turn on plans to cut winter fuel payments for pensioners and scaling back reforms to curb the soaring welfare bill to avert a backbench rebellion in the summer.

Profitable future

Announcing the tax relief threshold hike, 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 £1 million to £2.5 million which means couples with estates of up to £5 million 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.”

NFU president Tom Bradshaw said the announcement would be a “huge relief to many” and would “greatly” reduce the tax burden for many family farms.

He said: “Changes to Agriculture Property Relief (APR) and Business Property Relief (BPR) announced in last year’s budget came as a huge shock to the farming community. Until that moment, the best tax planning advice was to hold on to your farm until death and pass it on to the next generation who could continue to run a viable farming, food producing business.

“The original changes to APR and BPR, contained within the Finance Bill, resulted in a pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm. The NFU and its members have stood strong for what we believed in.

“I am thankful common sense has prevailed and government has listened.”

Opposition parties said Labour’s rowback did not go far enough.

U-Turn

Tory leader Kemi Badenoch said it was a “huge U-turn by the Government” on their “cruel, immoral” farm tax plans.

“It would have pushed farms to the brink, damaged our food supply, and hurt the people who work long hours to feed the country,” she said on X.

“This fight isn’t finished. Other family businesses are still affected by Labour’s tax raid, and we will keep pushing until the tax is lifted from them too.”

The Liberal Democrats’ Tim Farron called for the UK Government to scrap the “unfair tax in full” as “many family farms will still find themselves financially crippled and barely making the minimum wage”.

Reform UK deputy leader Richard Tice said: “This cynical climbdown – whilst better than nothing – does little to address the year of anxiety that farmers have faced in planning to protect their livelihoods.

“Even with the raised threshold, many family farms will still face crippling bills.

“With British agriculture hanging by a thread, the UK Government must go further and abolish this callous farms tax.”

The Welsh Deputy First Minister with responsibility for Rural Affairs, Huw Irranca-Davies, said: “The Welsh Government has consistently made clear to the UK Government the importance of the long-term sustainability of farming in Wales, which is underpinned by our Sustainable Farming Scheme.

“Our characteristic small and medium scale family-farms play a crucial role in the economy of Wales by providing food, caring for our environment, supporting rural communities and helping to protect the Welsh language.

“We have always been clear that the concerns of Welsh farmers should be listened to by the UK Government, so we welcome this announcement.

“In the new year I look forward to engaging further with our farming unions and with the UK Government on the impact of this announcement here in Wales.”

‘Hard won’ 

Welsh Liberal Democrat Westminster Spokesperson and Brecon, Radnor and Cwm Tawe MP David Chadwick said: “The Liberal Democrats were the first to call out and oppose the unfair family farm tax in last year’s budget and we have been proud to stand alongside our Welsh farming communities to campaign against it ever since.

“This concession has been hard won, and I am so grateful to all the Welsh farmers who have fought tirelessly to achieve this, including many from my own constituency.

“This is about fairness and security, if we undermine Welsh farming, then we also undermine our ability to provide the country with the food we need to keep us secure in an uncertain world and to build a healthy nation.

“Despite this welcome change, many Welsh family farms will still find themselves crippled, with incomes barely at minimum wage levels. The Liberal Democrats still believe this unfair tax should be scrapped in full and will be submitting amendments in the new year to try to do so.”

Responding to the Government’s change of course on inheritance tax (IHT), FUW President Ian Rickman has said: “Today’s news will be a welcome early Christmas present for many farmers across Wales who have endured months of uncertainty and anxiety caused by the UK Government’s ill-thought-out changes to IHT.

“The Government’s initial proposals for IHT reform caused untold worry for farming families, and have seriously dampened confidence across the sector and wider rural economy, as farmers have feared for the long-term succession of their businesses.

“The FUW has advocated for a fairer approach to inheritance tax reform, and has for the past year lobbied hard for the UK Government to change course and adopt a more proportionate approach. These calls have been matched by opposition parties, multiple cross-party parliamentary committees, and growing numbers of the Government’s own Members of Parliament.

“At a time of considerable uncertainty and volatility for farmers across Wales, the UK Government’s revisions to the tax threshold represent some much-needed relief.

“Though the FUW remains frustrated with the way the UK Government has approached these reforms, I would like to offer my thanks to Ministers in the Wales Office for their willingness to engage in dialogue with us on this issue to date.”

‘Too little too late’

The Welsh Conservative’s Shadow Farm Minister, Samuel Kurtz, said: “Labour’s U-turn on the family farm and family firms tax is welcome, but it has come far too late and it is not the end of this fight.

“Raising the Agricultural and Business Property Relief threshold to £2.5 million will protect more family farms and businesses from damaging inheritance tax bills, and it only happened because farmers and businesses stood up and refused to be ignored.

“For over a year, Labour pressed ahead with a policy the entire sector warned was wrong, creating anxiety, uncertainty and real harm to confidence in farming.

“However, serious concerns remain. The Sustainable Farming Scheme continues to lack clarity and confidence, the failure to eradicate bovine TB is costing farmers dearly, and the expanding burden of Nitrate Vulnerable Zones is placing further pressure on already stretched businesses.

“I will continue to hold Ministers to account and fight for policies that support productive, sustainable Welsh farming. Our farmers deserve clear leadership, workable schemes and a government that understands the realities they face.”

Plaid Cymru spokesperson on rural affairs Llyr Gruffydd MS said: “Whilst this will come as welcome relief to many,  it once again highlights the utter shambles within Labour’s UK Government. After the winter fuel allowance debacle and the U-turn on the two-child benefits cap, we now have a change to the family farm tax.

“As welcome as it is, it demonstrates that Labour is in utter chaos and has no idea what it’s doing.

“Plaid Cymru has consistently highlighted how this policy would hammer our family farms, leaving many with little option but to sell land rendering their business less sustainable for the next generation.

“Labour’s policy has caused untold harm and hurt to so many families, causing particular concern to our older generations. Kier Starmer should be ashamed of the way his government has dealt with this whole issue. It needn’t have come to this.”

‘Win for Welsh farmers’

Chair of the Welsh Affairs Committee, Ruth Jones MP, said: “The Government has listened to concerns and rightly raised the inheritance tax threshold; this is a win for Welsh farmers.

“However, as the Welsh Affairs Committee said in our November report, the inheritance tax reforms should be delayed until a Wales-specific impact assessment has been carried out, published and scrutinised. Ministers must recognise the distinct nature of farming in Wales. Declining livestock numbers, falling incomes, international pressures and mounting financial pressures – the situation is critical.

“We look forward to hearing how the Government’s rethink will impact farming in Wales, as we wait for the Government’s response to our report early in the new year. Let’s not waste any more time.”