Following a wave of protests, Defra has backtracked on its Autumn Budget inheritance tax (IHT) thresholds and announced an increase to £2.5 million.
The change comes into effect in April 2026, and the original threshold will have meant an effective tax rate of 20% on agricultural assets valued over £1 million.
The NFU spearheaded a 14 month campaign to get the government to reconsider its decision and NFU President Tom Bradshaw is delighted with the news.
“After it became clear that this policy wasn’t going anywhere, we have focused our campaign to mitigate the worst of its impacts for the majority. While there is still tax to pay, this will greatly reduce that tax burden for many family farms, those working people of the countryside.”
The news is also welcomed by Clive Pointon from Aaron & Partners but he cautions many estates will still fall within the changes, possibly without owners realising it.
“This is welcome news for farmers across the country who would otherwise have faced a significant and sudden Inheritance Tax burden, and the increased £2.5 million threshold will offer some protection to smaller farming businesses.
“However, this should not be seen as an all-clear. Many farming estates will still fall within the scope of the changes, often without owners realising it. Land and property values have risen sharply in recent years, meaning assets can exceed the new threshold far more easily than expected.
“It is therefore vital that farmers seek early, specialist legal advice and carry out a full review of their assets and estate structure. Without a proper audit, there is a real risk that families could face an unexpected tax liability at an already difficult time. Planning now is essential to avoid unpleasant surprises later.”
Iwan Williams, private wealth partner with law firm Michelmores agrees and says many in the sector will still face a significant tax bill. “This announcement will undoubtedly offer some relief to the rural and business owning community. It is good news, but many will say that the ‘watering down’ of the proposals do not go quite far enough. Many businesses will still face a significant (additional) tax burden which stands to have a profound effect on their future viability.”
