UK raises farmer inheritance tax threshold to £5 million for couples after protests

A tractor is driven through Parliament Square (PA) Stefan Rousseau

The UK Government has raised the inheritance tax relief threshold for farmers from £1 million to £2.5 million, marking a significant policy reversal following months of protests from rural communities. The change, effective from April, means couples can now pass on up to £5 million in qualifying agricultural or business assets tax-free.

The move represents a climbdown by Prime Minister Keir Starmer's government after widespread rural anger over the original reforms unveiled by Rachel Reeves in the 2024 Budget. Those plans proposed a 20 percent inheritance tax rate on agricultural property exceeding £1 million, sparking a huge wave of protests in London and backlash from Labour MPs in rural seats.

Environment Secretary Emma Reynolds confirmed the government had responded to pressure. "We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms," she stated. "We are increasing the individual threshold from £1m to £2.5m which means couples with estates of up to £5m will now pay no inheritance tax on their estates."

Relief for farming community

National Farmers' Union president Tom Bradshaw welcomed the announcement, saying it would bring "huge relief to many" and significantly reduce the tax burden on family farms. "I am thankful common sense has prevailed and government has listened," he said. "From the start the government said it was trying to protect the family farm and the change announced today brings this much closer to reality for many."

Bradshaw described the original changes to Agricultural Property Relief and Business Property Relief as a "pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm." The reforms had come as a "huge shock" to the farming community, he added, noting that previous tax planning advice had been to hold farms until death and pass them to the next generation.

Political pressure mounts

The threshold increase halves the number of farms affected by the inheritance tax changes.

However, the Liberal Democrats criticized the revised policy as still an "unfair tax in full," arguing that "many family farms will still find themselves financially crippled and barely making the minimum wage."

Baroness Minette Batters, former NFU president, prepared a farm profitability report for the government highlighting the severe impact of the original proposals. Some farmers, particularly arable crop growers, were "questioning viability, let alone profitability," she wrote. "The farming sector is bewildered and frightened of what might lie ahead."

At the Liaison Committee on December 15, Labour MP Cat Smith confronted Sir Keir about farmers feeling "misled" after rural communities had "put their trust in Labour for the very first time in a very long time." She detailed how elderly or terminally ill farmers faced dire implications if they survived past April under the original plan.

The Prime Minister acknowledged understanding "the concern," citing recent meetings with the NFU president, but maintained that "on agricultural property relief, there had to be sensible reform."

Reynolds emphasized the government's commitment to British farming. "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," she said. "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."

Note: This article was created with Artificial Intelligence (AI).