The new Labour government has been criticised by UK farmers after reducing Inheritance Tax relief on agricultural assets to £1 million.
The Inheritance Tax threshold for other individuals will stay frozen until 2030, meaning that as estates increase in value over time, more Inheritance Tax will be payable, and more estates will attract the tax.
Inheritance Tax relief for farms
From April 2026, farms worth more than £1 million will face a bill for Inheritance Tax. Only the first £1 million will be exempt, meaning farming families could struggle to pass on their business.
The value of a farm above the £1 million mark will pay Inheritance Tax of 20%. This is a 50% reduction in the normal rate of 40%.
Currently, small farmers have been able to pass on agricultural land, farm buildings, cottages and houses down through the generations free of Inheritance Tax, thanks to the Agricultural Property Relief.
The National Farmers’ Union (NFU) has said the changes are disastrous for family farms and will force farmers to sell land to pay tax. President Tom Bradshaw said, “The shameless breaking of clear promises on agricultural property relief will snatch away the next generation’s ability to carry on producing British food, plan for the future and shepherd the environment.”
Property expert Kirstie Allsopp said the government had “zero understanding of what matters to rural voters.” She added that the decision was appalling and would “destroy farmers’ ability to pass farms onto their children.”
Somerset farmer Richard Payne says that he has advised his son to consider a different career, believing that farming will become “completely unviable” under the new tax restrictions. He said that the £1 million threshold will only cover the smallest farms and could lead to increased land acquisition by large corporations. “Right across the land there will be a sea-change for the worse. Everyone says they don’t like mega-farms and they don’t want factory farming, but I can see that will be one answer out of all of this.
Vice-chair of the Nature Friendly Farming Network England, Somerset farmer Holly Purdey said, “longevity and generational thinking” were key in motivating farmers to care for the land and could be lost.
Inheritance Tax freeze
For other estates, the Inheritance Tax threshold freeze will remain in place until April 2030, which is an extra two years. This means that as property prices increase over the years, more people will end up paying more Inheritance Tax.
In addition, Chancellor Rachel Reeves announced that from April 2027, inherited pensions will be included in Inheritance Tax calculations.
Inherited pensions are also subject to Income Tax for beneficiaries if the deceased was aged over 75 or over at death. This means that Inheritance Tax of 40% could be payable on death, followed by Income Tax at the beneficiary’s personal tax rate, which could be 20%, 40% or 45%.
Both defined contribution pensions (money purchase schemes) and defined benefit pensions (final salary) will be subject to Inheritance Tax.