The UK government has performed a significant policy reversal, announcing a substantial increase to the inheritance tax threshold for farmers and business owners. This follows Chancellor Rachel Reeves's Autumn Budget and comes after intense lobbying from the agricultural sector.
Key Details of the Policy Change
In an announcement made on 23 December 2025, the Labour government confirmed it will raise the threshold for Agricultural and Business Property Relief from £1 million to £2.5 million. The change is scheduled to take effect from 6 April 2026.
According to the official Gov.UK statement, this adjustment 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 incurring any inheritance tax liability, on top of other existing allowances.
The amendment will be introduced to the Finance Bill in January 2026. The government stated it had listened to the concerns of the farming community and businesses, leading to this revised approach.
Impact on Estates and Families
This increase will dramatically reduce the number of farms and family businesses facing higher inheritance tax bills under the originally proposed reforms. The government's analysis indicates that only the largest estates will now be affected.
The announcement is forecast to have several key consequences:
- The number of estates claiming agricultural property relief affected by the reforms in 2026-27 is expected to halve, from 375 to approximately 185.
- Around 85% of estates claiming this relief in that period are projected to pay no more inheritance tax.
- Many families will see their potential inheritance tax bills cut by hundreds of thousands of pounds.
- The number of estates affected claiming only business property relief will fall by about a third, simplifying the system.
Government and Industry Reaction
Environment Secretary Emma Reynolds commented on the decision, emphasising the government's support for British farming. "Farmers are at the heart of our food security and environmental stewardship," she said.
"We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms," Reynolds continued. "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 government maintains that the core principle of the reform—that the most valuable agricultural and business assets should not receive unlimited relief—remains intact, but the higher threshold offers much greater protection for typical family-run operations.
