The Labour government has performed a significant policy reversal, announcing a major increase to the inheritance tax threshold for farmers. The move, which experts argue will reinforce a "broken system" and benefit wealthy land bankers, was confirmed on Tuesday 23 December.
Details of the Inheritance Tax Threshold Change
The key change involves raising the level of Agricultural and Business Property Reliefs from £1 million to £2.5 million. This adjustment will be introduced to the Finance Bill in January 2025 and will apply from 6 April 2026.
This reform means that spouses or civil partners will be able to pass on up to £5 million in qualifying agricultural or business assets between them before inheritance tax becomes due, on top of any existing allowances. The Treasury estimates the number of estates claiming agricultural property relief affected in the 2026-27 tax year will halve from 375 to 185.
Government Justification and Industry Reaction
Environment Secretary Emma Reynolds defended the decision, stating the government had listened to farmers. "Farmers are at the heart of our food security and environmental stewardship," she said. "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."
Colin Low, Managing Director at Ipswich-based Kingsfleet, called the U-turn "desperately needed," arguing the previous £1m figure was unfair. He pointed out that farming families had made succession plans based on no IHT and had incurred significant legal costs in the last year adapting to the old policy, costs he suggested the government should now refund.
Criticism: A Win for Land Bankers, Not Farmers?
However, the policy shift has drawn sharp criticism from some quarters. Rohit Parmar-Mistry, Founder of Burton-on-Trent-based Pattrn Data, offered a starkly different view. "Let's cut through the celebration. The Chancellor hasn't just caved to farmers; she’s capitulated to land bankers," he said.
Parmar-Mistry argued that raising the threshold effectively places a 'Keep Out' sign on British farmland for new entrants while creating a tax shelter for the wealthy. "A massive chunk of this 'agricultural' land isn't held by people growing food," he claimed. "It’s held by wealthy individuals who buy it to escape Inheritance Tax, then rent it back to real farmers at eye-watering rates. They don't farm the land; they farm the tax code."
He concluded that the policy artificially inflates land prices, locking out genuine farmers from expansion and perpetuating a system where land is treated as a financial asset rather than a source of food production.
