The administration softens death duty plan for agricultural businesses

Treasury intentions to impose a duty on passed-down agricultural land have been significantly revised, with the proposed tax-free allowance rising from £1m to £2.5m.

This policy shift comes after months of campaigns by farmers and disquiet from some Labour parliamentarians.

Background

At last year's financial statement, the government announced they would start imposing a inheritance charge on passed-on farming businesses worth more than £1m from the 2026 tax year.

In her first Budget in 2024, Chancellor Rachel Reeves declared she would be ending the favourable treatment on farmland that had been in place since the 1980s.

The measure would have seen passed-down farmland worth over £1m subject to a levy at 20%, 50% of the standard inheritance tax rate, yielding an estimated £520m annually by 2029.

Ministerial Comments

"We have paid close attention to farmers across the country and we are making changes today to shield more ordinary family farms."

"It's only right that larger estates pay a greater share, while we stand by the agricultural enterprises that are the lifeblood of Britain's countryside."

Industry Reaction

The President of the National Farmers' Union welcomed the change, stating it "takes out many family farms from the path of pernicious storm."

The President of the Country Land and Business Association noted: "The government deserves credit for acknowledging the problems in the first proposal and revising its stance."

He continued, "That said, this announcement only limits the damage - it doesn't eradicate it totally. Many family businesses will own enough expensive machinery and land to be priced above the limit, yet still operate on such thin profit margins that this levy remains prohibitive."

Parliamentary Reaction

In the period since the initial proposal, there have been ongoing rallies by farmers outside Parliament.

Some backbenchers in rural areas have also expressed concern. At a recent legislative vote on the plan, a twelve backbenchers abstained and one opposed the measure.

The Conservative leader commented on social media: "This campaign isn't finished. Other family businesses are still impacted by Labour's levy, and we will keep campaigning until the tax is lifted from them too."

A Liberal Democrat MP said: "It is completely unacceptable that family farmers have been put through over a year of worry and stress since the government first announced these changes."

The political party deputy leader stated: "This calculated U-turn - whilst better than nothing - does little to address the year of worry that farmers have faced... with British agriculture in a precarious state, the government must go further and scrap this damaging farms tax."

New Terms

The government had maintained that the change would safeguard smaller farms while stopping the very rich from buying farmland as a way to reduce tax.

Yet, it has now retreated from the initial plan increasing the exemption limit to £2.5m.

Alongside an provision which allows farmers to pass on assets to their partners free of inheritance tax, this new government concession means a partnership could pass on up to £5m in eligible assets.