Government Waters Down Inheritance Tax Plan for Farms
Government proposals to tax inherited farmland have undergone significant changes, increasing the threshold from £1 million to £2.5 million. This shift comes after months of protests from farmers and concerns raised by Labour backbenchers.
Key Changes to Inheritance Tax for Farms
– Initial Proposal: Introduced at last year’s Budget, the government planned to enforce a 20% tax on inherited agricultural assets exceeding £1 million starting April 2026, effectively ending the 100% tax relief that had been in place since the 1980s.
– New Threshold: Environment Secretary Emma Reynolds announced the increased threshold of £2.5 million. She stated, We have listened closely to farmers across the country, and we are making changes today to protect more ordinary family farms.
– Contribution from Larger Estates: Reynolds emphasized the need for larger estates to contribute more while supporting small farms, which are integral to Britain’s rural communities.
Reactions from Farmers and Organizations
– Support from Farmers: Tom Bradshaw, head of the National Farmers’ Union, welcomed the increased threshold, remarking that it takes out many family farms from the eye of a pernicious storm.
– Cautious Optimism: Gavin Lane, president of the Country Land and Business Association, noted, The government deserves credit for recognising the flaws in the original policy and changing course. However, he cautioned that despite these changes, many family businesses could still exceed the threshold, leaving them burdened by an unaffordable tax.
– Call for Further Action: Derbyshire farmer Ben Ardern stated it was a step in the right direction, urging the government to eliminate the tax for family farms and target wealthy landowners instead.
Political Tensions and Ongoing Protests
Over the past 14 months since the initial proposal debuted, farmers have consistently protested outside Parliament. Concerns from Labour MPs in rural areas have also surfaced, leading to significant political tensions. For instance, a dozen Labour backbenchers abstained during a parliamentary vote on this proposal, and Markus Campbell-Savours voted against it, resulting in his suspension.
– Continued Advocacy: Conservative leader Kemi Badenoch expressed determination to continue advocating for family businesses still impacted by the tax, while Liberal Democrat MP Tim Farron has called for the government to fully scrap the proposed tax, labeling the situation “utterly inexcusable.”
– Reform UK’s Stance: Richard Tice, Reform UK’s deputy leader, argued that while the adjustments are better than the original proposal, they do little to alleviate the anxiety farmers have experienced throughout this process. He emphasized the need to abolish the inheritance tax on farms entirely.
Summary of the Revised Inheritance Tax Proposal
With the recent changes, inherited agricultural assets valued over £2.5 million will now face a different tax structure:
– Threshold: Couples can now pass on assets worth up to £5 million tax-free (including an exemption for spouses).
– Tax Relief: For assets exceeding the threshold, a 50% relief will be applied.
According to government estimates, the number of estates expected to face increased inheritance tax in 2026/27 is projected to decrease from approximately 2,000 to around 1,100 due to the revised proposal.
Conclusion
The government’s decision to water down the inheritance tax plan for farms reflects a response to significant pressure from farmers and rural communities. While the increase in the threshold provides some relief, further discussions and advocacy are necessary to ensure the future stability and viability of family farms across the UK. With ongoing debates among political leaders and farmers alike, the journey towards a fair taxation policy continues.