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Fewer farmers will start paying inheritance tax from April after UK ministers were forced into a £130mn climbdown by a fierce backlash against the policy from rural communities and some Labour MPs.
In a surprise U-turn just before Christmas — and with parliament not sitting — the government announced it was lifting the threshold above which farmers will have to pay death duties.
Chancellor Rachel Reeves announced in last year’s Budget that farmland would no longer be exempt from inheritance tax and would be liable for a 20 per cent levy on assets worth more than £1mn from April 2026.
But on Tuesday ministers bowed to pressure and announced the threshold would be raised to £2.5mn, meaning that spouses or civil partners with combined estates worth up to £5mn will pay no inheritance tax on top of existing allowances.
Officials said the changes would reduce the number of family estates facing inheritance tax bills to about 1,100, from 2,000 under the original plans.
Only 15 per cent of farms will be liable for the levy, down from 25 per cent under the previous proposals.
Introducing inheritance tax on agricultural land had been expected to raise £430mn a year for the government by 2029-30, but that figure is now likely to be £300mn — meaning a net annual cost of £130mn.
Environment secretary Emma Reynolds said the government had “listened closely to farmers across the country” and was making changes “to protect” more ordinary family farms.
“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,” she added.
The move is the latest in a series of U-turns by the government this year, after ministers also dropped plans to remove the winter fuel allowance from millions of pensioners and to slash the disability welfare bill.
Farming groups have organised regular, noisy protests in Whitehall over the past year, with ministers criticised by opposition parties and some rural Labour MPs.
Markus Campbell-Savours, MP for Penrith and Solway in Cumbria, recently voted against the original proposals and was suspended from the Labour party as a result. A significant number of backbench Labour MPs abstained.
David Smith, Labour MP for North Northumberland, said on Tuesday that the government’s decision was “sensible and mature”.
Prime Minister Sir Keir Starmer last week met Tom Bradshaw, president of the National Farmers’ Union, who urged him to protect “the vulnerable and elderly” from the tax changes.
Bradshaw said on Tuesday that “while there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside”.
Starmer was also spurred into action by last week’s government-commissioned review of farming by former NFU president Minette Batters which found nearly a third of farms in Great Britain were lossmaking last year.
Batters said the inheritance tax changes had left farmers “bewildered and frightened of what might lie ahead”.
One Labour MP questioned the timing of the announcement during the Christmas “dead zone”, saying: “My general view is if you are going to U-turn, reap the political benefits of it and properly argue for it.”
Asked why the change was not in last month’s Budget, a government official said ministers had wanted to “get it right” after a long time engaging with the farming industry.
Kemi Badenoch, Conservative leader, said the “family farm tax” was cruel and immoral.
“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 added. “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.”
Phil Kinzett-Evans, partner at accounting firm UHY Hacker Young, said the tax changes would help some families, but others had already “made irreversible decisions — selling land, restructuring businesses or accelerating succession plans — because they believed the rules were settled”.
Tim Farron, the Liberal Democrat environment spokesperson, said it was “utterly inexcusable” that farmers had endured “over a year of uncertainty and anguish”.
Reform UK’s deputy leader Richard Tice said it was a “cynical climbdown” by the government and urged ministers to “abolish this callous farms tax” altogether.
