Government Softens Inheritance Tax Changes for Farmland After Farmer Backlash

Farmers staged renewed protests against the proposals during last month’s Budget.

The government has revised its proposed inheritance tax reforms for agricultural land, raising the tax-free threshold for inherited farms from £1 million to £2.5 million, following sustained protests from farmers and unease among Labour MPs.

Under plans announced in last year’s Budget, ministers had intended to end the 100% inheritance tax relief on agricultural assets that had existed since the 1980s. From April 2026, farmland and related assets valued above £1 million were set to face a 20% inheritance tax. The proposal sparked months of demonstrations outside Parliament and growing political pressure.

Confirming the change after MPs had left Westminster for the Christmas recess, Environment Secretary Emma Reynolds said the government had responded to concerns raised by the farming community.

“We have listened carefully to farmers across the country and are making changes to ensure more family-run farms are protected,” she said, adding that the revised policy would still ensure that larger estates contribute more while safeguarding rural businesses.

Farming groups cautiously welcomed the announcement. National Farmers’ Union president Tom Bradshaw said the higher threshold would remove many family farms from what he described as a damaging threat. However, others warned the policy still posed risks.

Gavin Lane, president of the Country Land and Business Association, said the revision reduced the impact of the tax but did not eliminate it. He noted that many farms could still exceed the new threshold due to high land values and expensive machinery, despite operating on tight margins.

Individual farmers echoed mixed reactions. Derbyshire farmer Ben Ardern described the move as “a step in the right direction” but argued that family farms should be exempt altogether, with the focus instead placed on large investors who use farmland primarily as a tax shelter.

The issue has also exposed divisions within Labour. In recent votes on the original plan, several rural Labour MPs abstained, and one MP, Markus Campbell-Savours, voted against the government and was subsequently suspended. Another Labour backbencher, John Whitby, welcomed the revised threshold, calling it “fantastic news,” while party sources criticised the timing of the announcement, saying MPs had only recently been asked to support the policy.

Opposition parties said the changes did not go far enough. Conservative leader Kemi Badenoch said the fight against what she called Labour’s “tax raid” on family businesses would continue. Liberal Democrat MP Tim Farron demanded the tax be scrapped entirely, while Reform UK deputy leader Richard Tice described the move as insufficient after a year of uncertainty for farmers.

Chancellor Rachel Reeves had originally argued that reforming agricultural inheritance tax would protect smaller farms while closing loopholes used by wealthy land investors. The government estimated the policy would raise around £520 million a year by 2029.

Under the revised plan, the higher £2.5 million threshold, combined with existing spousal exemptions, means a farming couple could pass on up to £5 million in qualifying assets tax-free. Assets above that level will receive 50% relief. The Treasury says the change will reduce the number of estates affected in 2026/27 from about 2,000 to roughly 1,100, at a cost of £130 million.

Despite the concession, ministers insist the policy will not be abandoned entirely, saying reform remains necessary to ensure the wealthiest estates pay a fair share.