Ministers have scaled back plans to tax inherited farmland, lifting the allowance from £1m to £2.5m and confirming a 50% relief above that level-an effective 20% rate on qualifying assets versus the standard 40%. Environment Secretary Emma Reynolds said the government had “listened closely to farmers”, announcing the shift after Parliament rose for the Christmas recess. The change is due to take effect in April 2026.

At the 2024 Budget, Chancellor Rachel Reeves set out the original reform: ending the near-blanket 100% relief that has existed since the 1980s and introducing a 20% charge on agricultural assets above £1m. The Treasury at the time pencilled in revenue building to around £520m a year by 2029. Today’s revision raises the threshold but keeps the reduced rate for amounts over it.

Crucially, the spouse exemption remains. Taken together with the higher allowance, a couple can now pass on up to £5m in qualifying agricultural assets without an inheritance tax bill. Beyond the threshold, assets benefit from 50% IHT relief, which equates to a 20% effective rate. Government estimates suggest roughly 1,100 estates will be affected in 2026/27, down from about 2,000 under the earlier design.

Industry reaction has been swift. National Farmers’ Union president Tom Bradshaw told BBC Radio 5 Live the change “takes out many family farms from the eye of a pernicious storm”. The Country Land and Business Association’s Gavin Lane gave ministers credit for recognising flaws, but warned that high asset values and tight margins could still leave some family businesses facing bills they cannot easily finance.

On the ground, farmers say the differentiation between owner‑operators and financial investors matters. Derbyshire farmer Ben Ardern called the move “a step in the right direction” and argued that corporate landholders should shoulder more of the burden. Many producers make a similar point: farms buy land to grow food; investors buy it to store wealth. Policy now tries to reflect that distinction without abandoning reform altogether.

Politics remains lively. Labour backbenchers in rural seats had raised concerns for months; at a recent vote, a dozen abstained and Markus Campbell‑Savours opposed the plan and was subsequently suspended, now sitting as an independent. One Labour source called the timing of the concession “bizarre”. Conservative leader Kemi Badenoch said “the fight isn’t finished”, while the Liberal Democrats’ Tim Farron labelled the saga “inexcusable” and demanded a full U‑turn. Reform UK’s Richard Tice dismissed the shift as insufficient.

The Treasury says increasing the threshold will cost about £130m and insists there are no plans to scrap the reform outright. The stated aim remains intact: protect smaller family farms while making very large estates contribute more. That balancing act will define how the rules land in practice, particularly for diversified holdings where it can be tricky to separate qualifying agricultural assets from non‑qualifying ones.

For valuations and liquidity, the maths moves meaningfully. Consider a sole‑operator estate with £3.2m of qualifying land and machinery: under the original £1m allowance, around £2.2m would have faced the 20% rate-roughly £440,000 due. With a £2.5m allowance, the taxable slice falls to £700,000, cutting the bill to about £140,000. That is a £300,000 swing in probate cash needs.

Now take a couple with £6.5m of qualifying assets being passed to the next generation. With a combined £5m shelter, roughly £1.5m would be exposed to the effective 20% rate-around £300,000. Under the earlier £1m design, the exposure would have been far larger. These illustrations are simplified; non‑qualifying assets, liabilities, and lifetime gifts all influence the final calculation.

The financing question is immediate. Many mixed farms run slim operating margins while carrying expensive kit. Directors should map a 6–12 month liquidity plan for any expected liability-talk to lenders early, set realistic asset‑sale timetables, and consider insurance options to avoid forced disposals at weak prices. This is especially relevant for capital‑intensive arable and dairy operations.

Succession planning will need a refresh before April 2026. Advisers commonly recommend up‑to‑date professional valuations, clean records distinguishing trading from non‑trading assets, and partnership or shareholders’ agreements that make the qualifying status clear. With the spouse exemption now central to the structure, the order of transfers and who owns what on death can materially alter the outcome.

What to watch next: draft legislation and HMRC guidance will clarify definitions of “qualifying agricultural assets”, how diversified income is treated, and evidential requirements at probate. Policy has shifted once already; farms should scenario‑test plans and keep documentation tight. This piece is general information, not personal tax advice.