Inheritance Tax changes bring welcome relief to farmers – but more needs to be done

Farmers have welcomed a government rethink on proposed farm inheritance Tax (IHT) changes, after months of concern that family farms could be forced to sell land to pay tax bills. However, more needs to be done to protect farms and family businesses and provide greater stability in policy.

What were the original farm Inheritance Tax proposals?

As part of the 2024 Autumn Budget, Chancellor Rachel Reeves announced that she would be scrapping the 100% IHT relief on agricultural assets, instead revealing plans to introduce IHT on farms valued above £1 million from April 2026.

That threshold caused concern – particularly here in the South West, where even relatively small farms can exceed £1 million in equipment and stock alone. Farmers and advisors warned the proposals failed to reflect the realities of modern agriculture, with rising land values masking tight profit margins and limited cash flow.

Many feared families would be forced to sell land or livestock simply to cover inheritance tax bills, putting long-established family farms at risk.

Government U-Turn on Agricultural Property Relief (APR)

Following strong opposition from the farming community, rural MPs and industry bodies, the government has now softened its stance just before we broke for the Christmas holidays.

The threshold at which farms become liable for IHT has been raise from £1 million to £2.5 million. Also, allowances can be combined between spouses or civil partners, meaning that many farming couples may now be able to pass on up to £5 million in agricultural assets without paying IHT.

The revised plans affect Agricultural Property Relief, a long-standing inheritance tax exemption that allows farms to be passed from one generation to the next. The changes are expected to benefit many family-run farms, but particularly in areas of the country where land values are high but farming incomes are often modest.

What the new rules mean for family farms

The government says it has listened to feedback and by raising the threshold, smaller farms are still protected. This means that for many smaller farmers, the revised IHT rules reduce the risk of large tax bills when farms are passed on to the next generation. With the spouse tax exemption, and the new £2.5 million threshold, couples could pass on up to £5m in qualifying assets without paying tax.

However, some larger family farms may still be affected. Farming advisers are encouraging families to review succession plans well ahead of the 2026 changes and to seek professional advice where land values are close to the new thresholds or there could be any doubt over eligibility.

Reaction from the farming community

While these changes have been largely welcomed, there is still more to be done to bring certainty to farming and the community is calling for extra measures to protect the already-narrow profit margins.

Many farmers are calling for greater stability in agricultural policy at a time when farmers are already under pressure from rising costs, labour shortages and environmental regulations.

While the government’s revised inheritance tax plans have eased immediate fears, farmers across the South West remain watchful, but it means that uncertainty around tax policy makes long-term planning even more important.

If you would like some further advice about how the new measures might affect you, your farm or your business, contact Monahans to see how we can help.

Andrew Perrott