British farming community responds to government U-turn on IHT

The government’s proposals to change the rules for APR and BPR (agricultural property relief and business property relief) are due to come into force in April 2026 and would have seen an effective tax rate of 20% on agricultural assets valued over £1 million.

On Tuesday, 23rd December, the UK government announced that the threshold will be raised to £2.5 million.

This is on top of the change to the spousal transfer allowance, announced by the Chancellor at the most recent Autumn Budget, which will allow those farmers who are married or have deceased spouses or civil partners to transfer their inheritance tax allowance to one another if one of them dies having not used their allowance, meaning they will be able to pass on up to £5 million in qualifying agricultural or business assets between them.

The Treasury has confirmed that the changes will be introduced to the Finance Bill in January and will apply from 6th April 2026.

Announcing the news, 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.”

She added that it was “only right that larger estates contribute more”.

‘Huge relief to many’

NFU president Tom Bradshaw said that the announcement comes as a “huge relief to many”.

He continued: “We have spent the past 14 months campaigning and lobbying to try and mitigate the worst of the impacts of the proposals.

“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.”

Mr Bradshaw added that changes to APR and BPR announced in last year’s Budget came as a huge shock to the farming community.

“Until that moment, the best tax planning advice was to hold on to your farm until death and pass it on to the next generation, who could continue to run a viable farming, food-producing business.

“The original changes to APR and BPR, contained within the Finance Bill, resulted in a pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm. The NFU and its members have stood strong for what we believed in.

“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.

“These conversations have led to changes which were so desperately needed. From the start the government said it was trying to protect the family farm, and the change announced brings this much closer to reality for many.

“I’d like to thank the Prime Minister for recognising the policy needed amending and the Chancellor for bringing in the spousal transfer in the Budget. Combined, this is a significant change,” the NFU president concluded.

‘Limiting the damage’

Gavin Lane, president of the Country Land and Business Association (CLA), said that the announced change will come as an “enormous relief” to thousands of family farms across the country who faced seeing their businesses taxed out of existence.

He continued: “The government deserves credit for recognising the flaws in the original policy and changing course.

“However, this announcement only limits the damage – it doesn’t eradicate it entirely. Many family businesses will own enough expensive machinery and land to be valued above the threshold, yet still operate on such narrow profit margins that this tax burden remains unaffordable.

“On that basis, we thank ministers for the constructive dialogue, we look forward to working in partnership to grow the rural economy, whilst continuing to call for these reforms to be scrapped entirely.”

Sean McCann, chartered financial planner at NFU Mutual, the financial advisory firm, highlighted that while this is a significant improvement on the previous proposals and will take many smaller farms and businesses out of the inheritance tax net, it will still leave many farming and business-owning families facing a large inheritance tax bill.

“Although farm asset values can be high, the returns are often low. In many cases we could still see land and buildings having to be sold on the farmer’s death to pay the tax bill, with the next generation inheriting smaller, less efficient farms as a result,” he concluded.

‘Governmnet needs to work with the rural community, not legislate against it’

Mo Metcalf-Fisher, director of external affairs at the Countryside Alliance, said: “This partial change to the disastrous family farm tax is welcome. It has caused months of unnecessary pain and suffering. It’s clear the government has realised that the growing perception that it is at war with the countryside is toxic.

“We hope that the government will learn the fundamental lesson of this policy debacle – which is that it needs to work with the rural community, not legislate against it.”

Mr Metcalf-Fisher added that the government has a “very long way to go” to rebuild trust, but the farming community ishopeful that this is the first step of many in restoring some semblance of a relationship between government and countryside.

Iwan Williams, private wealth partner with national law firm Michelmores, added: “This is a very welcome, and some would say long overdue, change to the inheritance tax reforms.

“This announcement will undoubtedly offer some relief to the rural and business-owning community. It is good news, but many will say that the ‘watering down’ of the proposals do not go quite far enough. Many businesses will still face a significant (additional) tax burden, which stands to have a profound effect on their future viability.

“In light of the forthcoming changes, many farms and estates have been considering and, in many cases, accelerating their succession plans. We are expecting this to continue into the New Year and beyond. Effective planning for farms and businesses remains essential as the full force of these changes begin to be felt from 6th April 2026. Whilst the change isn’t going to be quite as bad as feared, change is still coming.”

The announcement follows months of campaigning, which included a number of farmers’ rallies and gatherings.

‘A positive signal’

Mark Charter, head of estate management at Carter Jonas, said that raising the threshold to £2.5 million will make a “real difference” to many family farms and rural businesses, giving them some breathing space and much-needed stability at a time when confidence has been fragile.

“That said, for many landowners, £2.5 million will still not be enough. Essential assets required to run modern farming and estate businesses land, buildings, machinery and infrastructure add up very quickly. In many cases, those assets are not optional extras but the core tools of the business, and they cannot easily be broken up without damaging long-term viability.

“This change moves the dial in the right direction and sends a positive signal. But it does not remove the need for careful forward planning, professional advice and, ultimately, a broader conversation about how the tax system recognises the reality of asset-intensive rural businesses,” he concluded.

Most recently, farmers gathered in London on Budget day and during the second reading of the Finance Bill to showcase their disappointment with the changes to the inheritance tax announced at the Autumn Budget in 2024.

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