Inheritance tax threshold for farms raised to £2.5m in government U-turn

The government has announced a major change to its proposed inheritance tax reforms for farms, raising the threshold from £1 million to £2.5 million following widespread concern from the farming community.

The policy, first revealed in the 2024 Budget, had sparked strong opposition from farmers who warned it would make it increasingly difficult to pass farms on to the next generation. Under the original proposal, inheritance tax would have applied to agricultural assets valued above £1m.

The revised rules, due to come into force in April 2026, significantly increase that threshold. The government confirmed today that the agricultural and business property reliefs threshold will now be set at £2.5m. This means that spouses or civil partners will be able to pass on up to £5m in qualifying agricultural or business assets between them before inheritance tax is payable, in addition to existing allowances.

In a statement, the government said it had listened carefully to feedback from farmers and businesses following the announcement of the reforms.

“Having carefully considered this feedback, the government is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief,” the statement said.

The change will be introduced through the Finance Bill in January and will apply from 6 April 2026.