Relief for farmers as IHT threshold rises to £2.5m

Family farming businesses across the UK have been given a major reprieve after the government raised the zero-rate inheritance tax threshold for agricultural and business property reliefs (APR and BPR) from £1m to £2.5m – or £5m for married couples.

Under the revised rules, estates worth up to £2.5m will receive 100% APR and BPR, with 50% relief on amounts above, effectively taxing the excess at 20%.

Married couples or civil partners will be able to pass on a farm worth up to £5.65m tax-free, using two £2.5m agricultural or business property allowances plus two transferable £325,000 nil-rate bands.

See also: Small inheritance tax concession for farmers in otherwise damaging Budget

The Labour government says the changes will significantly reduce the number of estates affected by the reforms.

It estimates this will halve the number of estates claiming APR and BPR that are expected to pay inheritance tax, from 375 to 185 in 2026-27. Estates claiming only BPR will fall from 325 to 220.

The move is designed to protect family farms and businesses while ensuring the most valuable estates contribute fairly.

It will be introduced through an amendment to the Finance Bill 2025, taking effect from 6 April 2026.

Defra secretary Emma Reynolds said: “We have listened closely to farmers across the country and we are making changes today 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.”

Backbench rebellion

Several rural Labour MPs had voiced concerns about the farm IHT changes.

In a recent Commons vote on the measure, a number of backbenchers abstained and one, Penrith and Solway MP Markus Campbell‑Savours, broke ranks to vote against it.

Mr Campbell‑Savours was subsequently suspended from the Labour Party and now sits as an independent after defying the government over what critics had called the “family farm tax”.

Today’s announcement comes after over a year of widespread farmer protests, including large-scale demonstrations in London, and persistent lobbying from organisations including the NFU, Country Land and Business Association (CLA) and Tenant Farmers Association (TFA).

These campaigns have been ongoing since the controversial reforms were first announced by chancellor Rachel Reeves in her first Budget in October 2024, intensifying during the second reading of the Finance Bill in Parliament on 16 December.

NFU delighted

NFU president Tom Bradshaw said: “We have spent the past 14 months campaigning and lobbying to try and mitigate the worst impacts of the proposals.

“After it became clear that this policy wasn’t going anywhere, we have focused our campaign to mitigate the worst of its impacts for the majority.

“Today’s announcement, which sees the tax threshold raised from £1m to £2.5m, will come as a huge relief to many.

“While there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside.”

Mr Bradshaw described the original APR and BPR reforms as a “pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm”.

He expressed his gratitude to prime minister Sir Keir Starmer and Defra secretary Emma Reynolds for listening to farmers’ concerns, and also thanked Labour backbench MPs and the public, noting that more than 270,000 people had supported the NFU’s ‘Stop the Family Farm Tax’ campaign.

NFU Cymru president Aled Jones said: “A lot of people will be pleased with this, and in Wales it will cover a lot of family farms.

“Building on the fact that the chancellor has also announced the transfer between spouses and the index linking, which is crucial given how quickly land values move, this has come a long way.

“Credit, however, must not just go to the farming unions but to those Labour MPs who stood their ground. It really was a multi-faceted approach.”

NFU Scotland president Andrew Connon said: “Today’s announcement is a significant day for the future of Scottish agriculture.

“The changes set out by the UK government is a victory for common sense and reflects 14 months of relentless lobbying from NFU Scotland and the other UK farming unions in our pursuit to mitigate the worst of the impacts of the policy and protect our family farms.” 

‘Enormous relief’ – CLA boss

CLA president Gavin Lane said: “This change will come as an enormous relief to thousands of family farms across the country who faced seeing their businesses taxed out of existence.

“The government deserves credit for recognising the flaws in the original policy and changing course.”

But he cautioned: “This announcement only limits the damage – it doesn’t eradicate it entirely.

“Many family businesses will own enough expensive machinery and land to be valued above the threshold, yet still operate on such narrow profit margins that this tax burden remains unaffordable.”

Ian Rickman, president of the Farmers’ Union of Wales, said revisions to the tax threshold “represent some much-needed relief” during a time of volatility for Welsh farmers.

‘Increased headroom’

TFA chief executive George Dunn said: “This increased headroom will bring massive relief and hope to many farm families across the country, especially those in the tenanted sector.”

However, Mr Dunn noted: “Nevertheless, there is unfinished business regarding Inheritance tax for traditional estates that are asset-rich but cash-poor, with market values well above the new threshold.

“Although these estates will benefit from today’s changes, further incentives are needed to encourage landlords to grant secure agricultural tenancies to new entrants and progressive farmers, driving profitability and environmental performance.

“We will continue to call for concessions for landlords offering tenancies on a secure basis, including farm business tenancies of 10 years or more.”

Conservative leader Kemi Badenoch said: “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.”

Conservative MP and shadow Defra secretary Victoria Atkins said the government U-turn showed they were wrong, but it would not undo the months of stress inflicted on rural communities.

Meanwhile, Liberal Democrat spokesman Tim Farron MP called for the tax to be scrapped “in full”.