LABOUR has U-turned again as the inheritance tax (IHT) threshold rises for farmers to £2.5m – as experts warn “this policy reinforces a broken system”
The government has today (Tuesday 23 December) announced that the level of the Agricultural and Business Property Reliefs threshold will be increased from £1m to £2.5m when it is introduced in April 2026.
This allows spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax, on top of existing allowances.
The number of estates claiming agricultural property relief affected by the reforms in 2026-27 halves from 375 to 185.
The change will be introduced to the Finance Bill in January and will apply from 6 April.
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 secure a profitable future for British farming.
“We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms. 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.
“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.”
Experts said the U-turn was desperately needed because the £1m figure was not fair.
Far from fair
Colin Low, Managing Director at Ipswich-based Kingsfleet, said: “For over a year, the Government has been trying to convince the public that it was being fair to the farming community. This U-turn is evidence that it had been far from fair. Farming families have based their entire business plans on succession plans involving no IHT.
“In the last 12 months, farming families have been paying for advice in order to gift land, sell businesses, amend wills and create trusts. For small family farms much of that is now wasted and yet the legal bill will have run into several millions of pounds.
“Will the Government now also refund those costs? This is, however, excellent news for owners of family businesses too. They had also been impacted by the 2024 Budget changes but will also see the benefit of this increased IHT allowance for trading family businesses.”
Broken system
Rohit Parmar-Mistry, Founder at Burton-on-Trent-based Pattrn Data, said the move reinforces a “broken system”.
He added: “Let’s cut through the celebration. The Chancellor hasn’t just caved to farmers; she’s capitulated to land bankers. By raising this threshold to £2.5m, the government has effectively hung a ‘Keep Out’ sign on British farmland for actual new entrants, while rolling out the red carpet for wealthy investors looking for a tax shelter.
“The uncomfortable truth is that a massive chunk of this ‘agricultural’ land isn’t held by people growing food. It’s held by wealthy individuals who buy it to escape Inheritance Tax, then rent it back to real farmers at eye-watering rates. They don’t farm the land; they farm the tax code.
“This policy reinforces a broken system where land is valued as a financial instrument rather than a productive asset. It artificially inflates prices, meaning genuine farmers can’t expand, while ‘lifestyle’ landowners sit on appreciating assets tax-free. We’ve just made it easier for the wealthy to hoard land while pretending to save the family farm.”
Antonia Medlicott, Founder & MD at London-based Investing Insiders, warned that many are still going to be hit by a hefty tax bill.
She said: “This was the right thing to do and should significantly mitigate the impact for many smaller businesses. Until this change was announced in the 2024 Autumn Budget, the best planning advice for farmers was to hold onto their business and pass it on to the next generation, who would continue to run a food-producing business, and many families carefully prepared for this.
“The Budget change turned this planning on its head and has left many family businesses in a panic. While the government’s tax take from its plans was not insignificant, the long-term implications of the change and the destruction to long-held family businesses would have been far greater.
“However, there are questions as to whether this goes far enough, as the government says it will only halve the number of farms affected – that still leaves half worrying about whether future generations will need to sell the family farm in order to pay this tax bill.”
This tax grab was ludicrous
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said Labour’s policy does not go far enough.
She continued: “I’d rather have a cave-in than a food sovereignty crisis, which along with energy sovereignty, and tech sovereignty, is non-negotiable. The significant level of protests, from people inside and outside the farming community, have shown that this tax grab was ludicrous for genuine family farms.
“Love or hate Clarkson, I’ve learned so much about the hardships our farmers face putting food on our tables. The last thing they need is a greedy government making it even harder for the families that do brave the challenges with punitive supermarketed deals, to feed the nation. Rachel Reeves caving proves the farming community was right to fight back.
“But does this go far enough? Not remotely. In regions where land values reflect development pressure rather than agricultural productivity, even this threshold will force asset sales and break up working farms. Labour policy should support them, not force them to sell up to a faceless agricultural conglomerate to pay the taxman.”
The rules are still a minefield
Kate Underwood, Founder at Southampton-based Kate Underwood HR and Training, said it was only a “partial climbdown”.
She added: “Reeves has just proved that if you shout loud enough, Treasury policy gets wobbly knees. From a small business view, this is a neat headline and a partial climbdown, not a proper fix. Yes, pushing the APR/BPR threshold up to £2.5m will protect more family firms.
“But loads of SMEs are asset-rich and cash-poor. Property, plant, stock, goodwill. Not spare cash. If you’re over the cap, you can still end up with an inheritance tax bill that forces grim choices: borrow in a hurry, sell business assets, or squeeze costs. And that’s when jobs get “reviewed. The sting in the tail? The rules are still a minefield.
“If HMRC decides you look a bit too ‘investment-y’ and not enough ‘trading’, relief can wobble or vanish. So you’re left with uncertainty dressed up as reassurance. Does it go far enough? No. It just shifts the pain line. Tip: sort succession now. Wills, shareholder agreements, and a plan to fund any IHT. Don’t leave it until a funeral and a financial scramble.”
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, said the lesson to take was that the government is willing to roll back on poorly thought-out plans.
He continued: “The government has caved into the farmers’ French-style activism and rightly so. Maybe the idea of tractors clogging up the streets of central London was too much.
“However, manure being sprayed on Whitehall and Downing Street may cultivate some fresh ideas. Business owners need to learn from the strategic approach the farmers took and see what other parts of the Budget can be rolled back if we are to have any chance of economic prosperity.”
Photo by Anand Thakur on Unsplash
