Labour lifts IHT threshold for farmers and business owners to £2.5m after backlash

Labour has massively watered down its inheritance tax (IHT) raid on farmers and businesses following backlash.

Under plans announced the 2024 Autumn Budget, farmers and business owners were set to pay 20 per cent inheritance tax (IHT) on any agricultural or business property or land worth more than £1m from April 2026.

Currently, farmers and business owners benefit from business or agricultural property reliefs on their assets, allowing them to pass down their properties without triggering a large IHT bill.

The change had sparked outcry from farmers and MPs in rural constituencies and led to a number of protests across London, with fears that family businesses would have to be sold to pay the IHT bill.

Now, the government has announced it will increase the threshold at which IHT will be due to £2.5m.

It had already announced an amendment to allow spouses to transfer their allowance between themselbves, meaning spouses will now be able to pass on up to £5m in qualifying agricultural or business assets between them before any IHT is owed.

The government said it had “listened to concerns of the farming community and businesses about the reforms” and “carefully considered this feedback” before deciding to “protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief”.

What does this mean for me?

Raising the threshold will significantly reduce the number of farms and business owners facing IHT bills, although not all – the largest and most valuable estates will still be affected.

Labour said that the number of estates claiming agricultural property relief – including those also claiming business property relief – affected by the reforms in 2026-27 will halve from 375 to 185.

There are still questions around whether this goes far enough, but it will come as a huge relief to those with smaller estates.

How do the rate reliefs work?

Agricultural property relief and business property relief reduces the value of assets when working out how much IHT has to be paid, by basically applying 100% or 50% relief to the value of the land/property.