Inheritance tax threshold to rise for farmers after Rachel Reeves caves to months of pressure

Following changes to Agricultural and Business Property Relief announced in the 2024 Budget, the government said it has listened to concerns from farmers and business owners.

After reviewing that feedback, ministers have decided to go further to protect more farms and businesses, while keeping the principle that the largest and most valuable estates should not benefit from unlimited inheritance tax relief.

By raising the threshold, the government said far fewer farms and business owners will face higher inheritance tax bills, with the reforms now targeted mainly at the biggest estates.

Under the revised plans, the number of estates claiming Agricultural Property Relief, including those also claiming Business Property Relief, affected by the changes in 2026–27 will fall from 375 to 185.

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Most families will benefit, with inheritance tax bills reduced by hundreds of thousands of pounds in many cases.

Raising the threshold will significantly reduce the number of farms and business owners facing higher inheritance tax bills, ensuring the reforms apply mainly to the largest estates.

As a result, the number of estates claiming Agricultural Property Relief, including those also claiming Business Property Relief, affected in 2026–27 will fall from 375 to 185.

The number of estates affected that claim only Business Property Relief, excluding those holding only AIM shares, will also fall by around a third, reducing complexity and better targeting support.

Overall, around 85 per cent of estates claiming Agricultural Property Relief in 2026–27, including those also claiming Business Property Relief, are expected to pay no additional inheritance tax, with many families seeing bills cut by hundreds of thousands of pounds.

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. 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.”

The National Farmers’ Union President Tom Bradshaw said the change would come as a “huge relief” to family farms, after what he described as a “long-fought campaign” to soften the impact of last year’s Budget reforms.

“While there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside,” he said.

Mr Bradshaw described the original proposals as a “shock to the farming community” and warned they created a “pernicious and cruel tax” that trapped “the most elderly and vulnerable people and their families”.

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He said farmers had previously been advised to hold on to their land until death to pass it on tax-efficiently, advice that was upended by the reforms.

He welcomed what he called a return of “common sense”, thanking Prime Minister Sir Keir Starmer and the Chancellor for listening, and highlighting the importance of the new spousal transfer rules.

“From the start the government said it was trying to protect the family farm and the change announced today brings this much closer to reality for many,” he said.

Mr Bradshaw also praised Labour backbench MPs who raised concerns, opposition parties for applying pressure, and more than 270,000 members of the public who backed the campaign, adding: “In the end, it was well-reasoned and rational argument that won through.”

To deliver this, the government will introduce an amendment to the Finance Bill 2025 to:

• Increase the threshold at which 100 per cent Agricultural Property Relief and Business Property Relief applies from £1million to £2.5million per estate, with 50 per cent relief continuing to apply to qualifying assets above that level.

• Given the allowance will be transferable between spouses, a surviving spouse or civil partner will be able to pass on up to £5million of qualifying agricultural and business assets tax-free, on top of existing nil‑rate bands. This will apply to people who are widowed and have lost spouses or civil partners before the policy was introduced.

The government said it remains committed to making the tax system fairer by scaling back generous inheritance tax reliefs for the largest agricultural and business estates, while still recognising the vital role farms and businesses play in local communities and the wider economy.

Under the revised approach, qualifying agricultural and business assets will continue to be taxed at a much lower effective rate than most other assets.

Ministers said the changes reflect concerns raised by the farming and business sectors, while preserving most of the revenue from the reforms to help reduce debt, curb borrowing and fund public services.

The cost of the changes will be included in the next Office for Budget Responsibility forecast.

The announcement also follows the government’s pledge to create a new Farming and Food Partnership Board, bringing together senior figures from farming, food production, retail, finance and government to strengthen food production through a practical, partnership-led approach from farm to fork.

It builds on recent planning reforms under the National Planning Policy Framework aimed at cutting red tape and making it easier for farmers to expand their businesses, including simpler approvals for farm reservoirs, greenhouses, polytunnels and farm shops, in a move ministers say will support rural growth and boost food production.