Industry leaders have welcomed the surprise government announcement that, following concerted lobbying and campaigning, the inheritance tax threshold for farmers will be raised to £2.5m when it is introduced in April 2026.
The government said it has listened to concerns of the farming community and businesses about the reforms and, having carefully considered this feedback, is ‘going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief’. The change will be introduced to the Finance Bill in January and will apply from 6 April.
The announcement will halve the number of estates claiming Agricultural Property Relief (including those also claiming Business Property Relief) who are affected by the reforms – better targeting the relief, the government added.
The move 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.
As a result:
- The number of estates claiming agricultural property relief (including those also claiming business property relief) affected by the reforms in 2026-27 halves from 375 to 185.
- Most estates will benefit, with inheritance tax cut by hundreds of thousands of pounds for many families.
- The number of estates affected by the reforms claiming only business property relief – excluding those holding only AIM shares – will fall by a third, reducing complexity and ensuring support goes where it’s needed most.
- Around 85% of estates claiming agricultural property relief in 2026-27, including those that also claim for business property relief, are forecast to pay no more inheritance tax on their estates.
Defra 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.”
Reaction
NFU President Tom Bradshaw said the announcement will ‘come as a huge relief to many’. “We have spent the past 14 months campaigning and lobbying to try and mitigate the worst impacts of the proposals,” he said.
“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. While there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside.”
“I am thankful common sense has prevailed and government has listened. I have had two very constructive meetings with Prime Minister Sir Keir Starmer and dozens of conversations with Defra Secretary of State Emma Reynolds. She has played a key role underlining the human impact of this tax.”
He thanked the Prime Minister ‘for recognising the policy needed amending and the Chancellor for bringing in the spousal transfer in the Budget’ and the Labour backbench MPs who supported the campaign.
“I am immensely proud of all those farmers and growers who have worked with the NFU and supported our campaign. We have stood together and supported one another when it really mattered. In the end, it was well-reasoned and rational argument that won through,” he said.
NPA chief executive Lizzie Wilson said: “This announcement will come as a huge relief to many family farms who were fearing for their futures after the original announcement in November 24.
“We welcome the fact that the government has listened to these concerns and done the right thing.”
Alistair Carmichael, chair of the EFRA Committee, said: “This is a major concession from the Government and should be welcomed as such. After a tough year, farmers and their supporters finally have a reason to give cheers this Christmas.
“I am proud of the role that the EFRA Committee has played in providing scrutiny to the Government and a voice for those impacted by these proposals.
“The lesson here surely must be that the Government should listen to farmers and the wider rural community across the piece on the issues that matter to us.”