The news comes after months of prolonged protests by farmers across the country.
The Government has announced a major change to the threshold for inheritance tax relief for farmers, increasing it from £1 million to £2.5 million. The move comes after months of protests from the farming community following the initial announcement during last year’s first Labor budget.
Initially, the Treasury aimed to generate income as farmers transferred their businesses to the next generation. However, the proposal sparked protests, with tractors gathering outside Parliament as Prime Minister Keir Starmer faced scrutiny from MPs representing rural constituencies.
From April, the new higher threshold will allow spouses or civil partners to transfer up to £5 million of qualifying farming or business assets between them before incurring inheritance tax, on top of existing allowances, the Department for Environment, Food and Rural Affairs said.
For assets above this allowance, farmers will receive a 50% relief on eligible assets and will be subject to a reduced effective rate of up to 20%, instead of the standard 40%. The government estimates that the number of estates subject to higher inheritance tax will fall from around 2,000 under the original proposal to around 1,100, which will only affect the largest holdings.
Currently, farmers do not pay inheritance tax on the agricultural and business assets they pass on. Under Labour’s original proposal, the full 100% relief was to be limited to the first £1 million of property.
Sir Keir Starmer told the liaison committee last week he understood farmers’ concerns, but he defended “sensible reform”.
The prime minister has changed course on several policies this year, with a U-turn on plans to cut winter fuel payments for retirees and reduce a crackdown on disability benefits to avoid a cross-party conflict.
Announcing the increase in the tax relief threshold, Environment Secretary Emma Reynolds said: “Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to ensure a profitable future for British agriculture.
“We have listened carefully to farmers across the country and today we are making changes to protect more ordinary family farms. We are increasing the individual threshold from £1 million to £2.5 million, meaning couples with an estate of up to £5 million will now pay no inheritance tax on their estates.
“It’s right that larger estates contribute more, while we support the farms and commercial businesses that form the backbone of Britain’s rural communities.”
NFU president Tom Bradshaw said the announcement would come as a “huge relief to many” and would “significantly” reduce the tax burden on many family farms.
He said: “The changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) announced in last year’s Budget came as a huge shock to the farming community. Up until that point, the best tax planning advice was to hold on to your farm until you died and pass it on to the next generation, who could continue to run a viable farming and food producing business.
“I’m grateful that common sense prevailed and the government listened.”
Former Top Gear presenter Jeremy Clarkson, who bought a farm in 2008 but only started running it himself in 2019, has been at the forefront of the campaign against the new tax, tweeting in support of the reversal, saying: “Great news for farmers and businesses. »
