Labour Government Backs Down on Inheritance Tax for Family Farmers After Rural Backlash

Sir Keir Starmer has significantly revised Labour’s approach to inheritance tax on farming estates following sustained opposition from rural voters and industry leaders. Under the new measure, the threshold for agricultural assets that can be passed on without triggering inheritance tax increases from £1 million to £2.5 million per individual. As a result, spouses or civil partners with estates up to £5 million between them can now transfer these assets to their children free of inheritance tax liabilities.

This policy reversal was shaped by mounting protests and lobbying efforts, particularly after the initial inheritance tax plan imposed a £1 million cap on Agricultural and Business Property Reliefs. The government argued the original proposal would prevent wealthy landowners from using agricultural classification as a loophole to avoid tax. However, farming groups and many Labour MPs representing rural areas warned that the measure would force the break-up of family farms. The backlash included protests in Westminster that disrupted traffic and led to a notable Labour rebellion in the House of Commons.

Pressure intensified after senior figures, including Tom Bradshaw, president of the National Farmers’ Union, expressed the dire consequences faced by farm families, some reporting significant distress. The government, in response, acknowledged these concerns and engaged in direct dialogue with farming representatives. Environment Secretary Emma Reynolds indicated that the decision reflected a commitment to safeguarding the future of ordinary farms, underlining the crucial role of farmers in food security and environmental management.

Kemi Badenoch, Conservative leader, characterised the Labour retreat as a “huge U-turn” and criticised the initial policy for its harsh impact on rural communities. While the change has been welcomed by industry leaders and campaigners, several critics note that although the update reduces the number of estates affected, it does not eliminate financial challenges for larger family businesses that may still exceed the new threshold due to high land and equipment values.

With these adjustments, projected annual revenue from the policy will fall to an estimated £300 million, roughly half the original forecast. Treasury sources maintain that the revision was the result of ongoing policy review rather than external pressure. While the move is credited with providing relief to many farm owners, calls for further reforms continue, with Liberal Democrat and industry voices urging for the tax’s complete abolition.