Keir Starmer reverses Labour’s inheritance tax plan for farmers after mounting pressure, highlighting tensions between policy and agricultural voters.
After a year of protests against the proposals, the prime minister and National Farmers Union (NFU) head Tom Bradshaw held crucial negotiations last week that resulted in the climbdown.
Chancellor Rachel Reeves' announcement last year that farmers would be subject to a 20% tax on agricultural assets over £1 million starting in April 2026 caused a flurry of anger, with concerns that family-run farms would be most negatively affected.
However, Labour announced on Tuesday that it was altering the idea by increasing the threshold from £1 million to £2.5 million, which would exempt the majority of farms from paying it.
In addition to the current exemptions, the government stated that this would enable spouses or civil partners to transfer up to £5 million in eligible business or agricultural assets between them before paying inheritance tax.
"This is great news,"
said Gareth Wyn Jones, a farmer from North Wales who had led the demonstrations against the tax.
Environment secretary Emma Reynolds said:
”Farmers are at the heart of our food security and environmental stewardship, and I am determined to work with them to secure a profitable future for British farming.
We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms.
We are increasing the individual threshold from £1m to £2.5m which means couples with estates of up to £5m will now pay no inheritance tax on their estates.
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.”
They said:
“Huge news for family farmers. The Labour government have finally u-turned on the inheritance tax on family farms. They have announced that the threshold is rising to £2.5 million. It’s still not enough, but it’s still a huge victory for everyone who has relentlessly campaigned on this.”
NFU president Tom Bradshaw said:
“After months of NFU campaigning, the government has today announced changes to the threshold for inheritance tax for family farms. These changes mark a huge victory for British farmers.”
Mo Metcalf-Fisher, director of external affairs for the Countryside Alliance, said:
“This partial change to the disastrous family farm tax is welcome. It has caused months of unnecessary pain and suffering. It’s clear the government has realised that the growing perception that it is at war with the countryside is toxic.”
Tractors descended on Whitehall as part of frequent protests in London over the so-called Tractor Tax, also known as the Family Farm Tax.
Farmers' organizations warned that even with today's climbdown, Labour will "find it hard to win back" because Sir Keir had sought out the agricultural sector prior to the election, and the change to the inheritance tax was perceived as a "breach of trust."
Responses to a recent government study of farming incomes and profitability by former NFU president Baroness Minette Batters, which was released last week after two delays, were dominated by this topic.
The original £1 million threshold was far too low, even according to tax expert Dan Neidle, who was the driving force behind the plan to begin imposing inheritance tax on farms.
In the 19 months since winning the election, this is simply the most recent significant economic policy that Sir Keir's administration has reversed. Following a revolt by Labour MPs, the government withdrew from a plan to cut welfare by £5 billion annually, and the attempt to eliminate winter fuel subsidies for 11 million pensioners was mainly abandoned.
In response to pressure, Sir Keir also changed his mind about maintaining the two-child benefit cap. Additionally, when Chancellor Rachel Reeves had stated that an increase in income tax was likely to occur, the plan was shelved before it was put into effect.
The climbdown is "too little, too late," according to Tory shadow environment secretary Victoria Atkins.
She posted on X:
“At long last, Labour has snuck out a partial U-turn on their vindictive Family Farm Tax. It is too late for some, however. Businesses and lives have been lost. Rural communities will not forget the distress, pain and panic this government has caused them.”
"It is utterly inexcusable that family farmers have been put through over a year of uncertainty and anguish since the Government first announced these changes,"
said Tim Farron, a spokesman for the Liberal Democratic Party's rural affairs.
"This is about justice and security - if we undermine British farming then we also undermine our ability to provide us with the food we need to keep us secure in an uncertain world.
Yet many family farms will still find themselves financially crippled and barely making the minimum wage.”
Reform UK Deputy Leader Richard Tice said:
"Labour’s tax raid on family farms has already been a disaster for the sector, plunging countless farmers into despair, with heartbreaking reports of some taking their own lives in order to save their farms for future generations.
This cynical climbdown - whilst better than nothing - does little to address the year of anxiety that farmers have faced in planning to protect their livelihoods."
How will the new threshold affect small family farms financially?
The new £2.5 million individual heritage duty relief threshold for agrarian property, effective April 2026, will largely purge small family granges from any fresh duty burden, guarding those valued under£ 5 million for couples.
Preliminarily, granges exceeding£ 1 million faced 20 duty on the excess after 50 relief; the advanced cap spares an estimated 900 fresh estates annually, meaning typical small operations frequently under£ 2 million with low inflows avoid forced deals or bifurcations to cover arrears.
While 50 relief applies above £2.5 million, small granges gain certainty for generational transfer, reducing self-murder pitfalls noted in demurrers; larger ones still contribute more, aligning with government aims to fund public services without crippling pastoral viability.