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The UK government has been forced into a climbdown on inheritance tax for farmers following a fierce backlash from rural communities and some Labour MPs.
The government on Tuesday said the threshold for paying 20 per cent inheritance tax on farmland would increase to £2.5mn, from the £1mn initially proposed, from April.
This means that spouses or civil partners with combined estates worth up to £5mn will pay no inheritance tax on top of existing allowances.
Officials said the change would reduce the number of family estates facing inheritance tax bills from 2,000 under the original plans to about 1,100 now.
Environment secretary Emma Reynolds said the government had “listened closely to farmers across the country” and was making changes “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,” she said.
The move is the latest in a series of U-turns this year after the Labour government also dropped plans to remove the winter fuel allowance from millions of pensioners and to slash the disability welfare bill.
Labour’s original inheritance tax plan would have meant that agricultural landowners would pay a 20 per cent levy on land worth between £1.3mn and £3mn, depending on whether they were married and if they owned a home.
But the plan triggered a significant backlash from farming groups including the National Farmers’ Union, the Tenant Farmers Association and the Country Land and Business Association.
Many farms are already under financial pressure from rising costs and Brexit-related disruption, a government-commissioned review found last week.
The inheritance tax proposals have also caused fractures within Labour’s own ranks.
Markus Campbell-Savours, MP for Penrith and Solway in Cumbria, recently voted against the original proposals and was suspended for voting against the government — meaning he now sits as an independent MP.
A dozen backbenchers abstained on the vote. David Smith, MP for North Northumberland and one of the key Labour MPs pushing for a change, wrote on X on Tuesday that the government’s decision was “sensible and mature”.
A government official said the late announcement came as ministers had made sure to “get it right” after a long time engaging with the farming sector.
They added the move was “not a U-turn” of previous policy “as larger estates will have to contribute more” in tax.
“Tax policy is always under review and the reason for getting it out now is to make sure it is in the financial review in January,” they said.
Criticising the government’s decision, shadow business secretary Andrew Griffith said: “Applying inheritance tax to family businesses remains wrong and raising the threshold merely disincentivises growth and success. The rational response will be to simply not make that extra hire or open another venue.”
NFU president Tom Bradshaw said the changes meant that “while there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside”.
Tim Farron, the MP for Westmorland and Lonsdale and Liberal Democrat environment, food and rural affairs spokesperson, said: “It is utterly inexcusable that family farmers have been put through over a year of uncertainty and anguish since the government first announced these changes.”
Reform UK’s deputy leader Richard Tice said it was a “cynical climbdown” by the government that did little to address the year of anxiety that farmers have faced. “With British agriculture hanging by a thread, the government must go further and abolish this callous farms tax.”