Key Takeaways
- The UK government has watered down its proposals to tax inherited farmland, increasing the threshold from £1m to £2.5m.
- The changes follow months of protests by farmers and concerns from Labour backbenchers.
- The new threshold means a couple could pass on up to £5m in qualifying assets without paying tax, with a 50% relief applied to remaining assets above the threshold.
- The government’s climbdown is expected to reduce the number of estates paying more inheritance tax from 2,000 to 1,100.
- The changes are seen as a victory for farmers, but some critics argue that the tax burden remains unaffordable for many family businesses.
Introduction to the Government’s Proposals
The UK government had initially proposed to impose a 20% tax on inherited agricultural assets worth more than £1m from April 2026, ending the 100% tax relief that had been in place since the 1980s. However, after months of protests by farmers and concerns from Labour backbenchers, the government has announced a U-turn, increasing the threshold to £2.5m. This change is seen as a significant concession to farmers, who had argued that the original proposal would have a devastating impact on their businesses.
Reaction to the Changes
The head of the National Farmers’ Union, Tom Bradshaw, has welcomed the change, saying it "takes out many family farms from the eye of a pernicious storm". Gavin Lane, president of the Country Land and Business Association, also praised the government for recognizing the flaws in the original policy and changing course. However, some critics argue that the changes do not go far enough, with many family businesses still facing an unaffordable tax burden. Ben Ardern, a farmer from Derbyshire, said that the government should "drop it [the tax] for family farms… and just tax the people who have got the money to tax".
Background to the Protests
The protests against the government’s proposals had been ongoing for 14 months, with farmers regularly demonstrating outside Parliament. Some Labour MPs in rural areas had also expressed concern, with a dozen backbenchers abstaining from a recent parliamentary vote on the plan. The government’s climbdown is seen as a victory for the farmers and a significant U-turn for the government. However, the timing of the change has been criticized, with one Labour source describing it as "bizarre" and arguing that many MPs would be annoyed as "they were made to vote for it so recently".
Response from Opposition Parties
The Conservative leader, Kemi Badenoch, said that "this fight isn’t finished" and that the party would continue to push for the tax to be lifted from other family businesses. The Liberal Democrat spokesperson, Tim Farron MP, described the government’s announcement as "utterly inexcusable" and demanded that the government scrap the tax in full. Reform UK deputy leader Richard Tice said that the climbdown was "cynical" and did little to address the anxiety faced by farmers. The government’s U-turn is seen as a significant concession, but it remains to be seen whether it will be enough to alleviate the concerns of farmers and opposition parties.
Implications of the Changes
The changes to the government’s proposals are expected to reduce the number of estates paying more inheritance tax from 2,000 to 1,100. The new threshold means that a couple could pass on up to £5m in qualifying assets without paying tax, with a 50% relief applied to remaining assets above the threshold. According to the government, the changes will cost £130m, but there are "no plans" to scrap the policy entirely. The principle of reforming the tax system remains, with the government arguing that it is right that the wealthiest estates pay their fair share, while smaller farms get help. The changes are seen as a significant concession to farmers, but it remains to be seen whether they will be enough to alleviate the concerns of farmers and opposition parties.