Government proposals to tax inherited farmland have been watered down, with the planned threshold increasing from £1m to £2.5m.
Inheritance tax rule change from April will ‘remove UK families from eye of storm’
The Labour Party government is raising an inheritance tax threshold this April. Labour Party government proposals to tax inherited farmland have been watered down, with the planned threshold increasing from £1m to £2.5m.
At last year’s Budget, ministers said they would start imposing a 20% tax on inherited agricultural assets worth more than £1m from April 2026, ending the 100% tax relief that had been in place since the 1980s.
Head of the National Farmers’ Union Tom Bradshaw welcomed the change, telling BBC Radio 5 Live it “takes out many family farms from the eye of a pernicious storm”.
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Gavin Lane, president of the Country Land and Business Association, said: “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.”
Financial experts at the BDO accountancy firm said: “Gifts and settlements you make from October 30, 2024, up to April 5, 2026, initially fall under the current rules, so, in most cases, they can be made without a lifetime IHT charge.
“However, if you die after April 5, 2026, and death is within seven years of that transfer, any resulting IHT liability will be calculated by reference to the new rules.
“In comparison, transfers made after April 2026 will fall completely under the new rules, and so lifetime IHT would be due on gifts, such as settling trusts, where the value exceeds £2.5m plus any IHT NRB available. There would also be potential IHT on death within seven years.”
Financial experts at Saffery said: “Some individuals may consider transferring £2.5 million of qualifying property into trust now (potentially with £325,000 of non-qualifying property if their nil rate band is available) in order to start the seven-year cycle.
“It will also become increasingly important to consider how asset ownership is structured and whether planning mechanisms and other reliefs, such as Conditional Exemption and Woodlands Relief, apply.”