The government foils an agricultural inheritance tax plan.

Government proposals to tax inherited agricultural land have been weakened, with the planned threshold raised from £1m to £2.5m.

The drop follows months of protests by farmers and concern from some Labour backbenchers.

In last year’s budget, ministers said they would start imposing a 20% tax on inherited farm properties worth more than £1 million from April 2026. The government is ending the 100% tax relief that has been in place since the 1980s.

In an announcement made after MPs left Parliament for the Christmas holidays, Environment Secretary Emma Reynolds said, “We have listened carefully to farmers across the country, and we are making changes today to protect more ordinary family farms.”

“It is right that larger properties contribute more, while we support the farms and commercial businesses that are the backbone of Britain’s rural communities,” he said.

The National Farmers Union’s head, Tom Bradshaw, applauded the change, stating on BBC Radio 5 Live that it “protects numerous family farms from the impact of a severe storm”.

Gavin Lane, chairman 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 declaration only limits the damage – it does not eliminate it completely.

“Many family businesses will have such expensive machinery and land that their value exceeds the threshold, yet they operate on such narrow profit margins that it becomes unaffordable to bear the tax burden.”

Ben Ardern, a Derbyshire farmer, expressed his approval to the BBC, calling it a positive step.

The government should exempt family farms.

He stated that the government should exempt family farms from the tax and only impose taxes on those who can afford to pay them.

“Big corporations that just hid money in land—they’re not farmers; they did it to avoid taxes. Farmers didn’t buy land to avoid taxes; we bought land to farm and grow food.”

Farmers have regularly protested outside Parliament in the 14 months since the initial proposal’s announcement.

Some Labour MPs from rural areas have also expressed concerns. In a recent parliamentary vote on the plan, a dozen backbenchers abstained and one, Marcus Campbell-Severs, voted against it.

Campbell-Severs was later suspended for voting against the government, meaning he now sits as an independent MP.

John Whitby, a Labour MP from the rural research group of backbenchers, said the government’s easing the inheritance tax was “fantastic news.”

But a Labour source described the timing of the change as “bizarre”.

He said many MPs would be angry because “they were recently forced to vote for it.”

“This fight is not over,” Conservative leader Kemi Badenoch said in a post on social media.

“Other family businesses are still affected by Labour’s tax raids, and we will keep applying the pressure until the tax is lifted from them too.”

Liberal Democrat spokesman Tim Farron MP said, “It is completely inexcusable that family farmers have had to endure more than a year of uncertainty and suffering since these changes were first announced by the Government.

“We demand that the government scrap this unfair tax altogether and if they refuse, the Liberal Democrats will table an amendment in the New Year to reduce it.”

Richard Tice, deputy leader of Reform UK, said: “This scandalous drop – although better than nothing – does little to address the year of anxiety that farmers have faced in planning to protect their livelihoods… With British agriculture hanging on by a thread, the government must step up and end this harsh farm tax.”

In her first budget in 2024, Chancellor Rachel Reeves announced she would reverse the 100% inheritance tax relief on agricultural properties that had been in place since the 1980s.

The move would see inherited agricultural properties worth more than £1m taxed at 20%, half the standard inheritance tax rate, raising an estimated £520m a year by 2029.

The government had argued that the change would protect small farms while preventing wealthy investors from purchasing agricultural land as a way to avoid taxes.

However, it has now backtracked on the original proposal to raise the threshold level to £2.5m.

Combined with an exemption that allows farmers to pass tax-free assets to their spouses, this new government concession means a couple can give away up to £5 million in qualifying assets without paying tax.

Above the limit, a relief of 50% will be applied to the remaining assets.

According to the government, the number of estates in the UK expected to pay more inheritance tax in 2026/27 will fall from around 2,000 under the original plans to 1,100 under the new proposal.

A Treasury source said changing the limit would cost the government £130 million, but there were “no plans” to scrap the policy altogether.

“The principle remains to reform the tax system,” the source said. “It’s true that the wealthiest estates contribute fairly, but smaller farms will receive assistance.”

The government has made a series of U-turns since its election in July 2024, with this decline being the latest.

Earlier this year, the government effortlessly reduced the winter fuel payment and abandoned its plans to reduce the welfare bill by £5 billion.