Ministerial proposals to impose a duty on inherited agricultural land have been watered down, with the originally announced exemption limit being raised from £1m to £2.5m.
This rethink is a response to months of protests by the farming community and disquiet from some governing party MPs.
Original Plan
At last year's financial statement, the government stated they would start introducing a inheritance charge on passed-on farmland and machinery worth more than £1m from April 2026.
In her first fiscal event in 2024, Finance Minister Rachel Reeves stated she would be ending the tax relief on agricultural assets that had been in place since the 1980s.
The move would have seen passed-down agricultural assets worth over £1m subject to a levy at 20%, half the standard inheritance tax rate, generating an estimated £520m per year by 2029.
Official Announcement
"We have listened closely to family farms across the country and we are adjusting our policy today to safeguard more everyday family farms."
"It's only right that wealthier landowners pay a greater share, while we stand by the agricultural enterprises that are the backbone of Britain's countryside."
Farming Response
The Head of the National Farmers' Union praised the change, saying it "takes out many family farms from the eye of pernicious policy."
The Spokesperson of the Country Land and Business Association noted: "The government is to be praised for acknowledging the shortcomings in the initial plan and changing course."
He added, "That said, this announcement only reduces the harm - it doesn't eradicate it totally. Many family businesses will own enough expensive machinery and land to be priced above the limit, yet still operate on such narrow profit margins that this levy remains prohibitive."
Parliamentary Reaction
In the year-plus since the initial proposal, there have been frequent protests by farmers outside Parliament.
Some governing party politicians in the countryside have also voiced unease. At a recent division in the Commons on the plan, a twelve backbenchers did not vote and one voted against.
The Conservative leader said on a social platform: "This campaign isn't over. Other family businesses are still affected by Labour's levy, and we will keep pushing until the tax is lifted from them too."
A Liberal Democrat spokesperson said: "It is completely unacceptable that family farmers have been put through over a year of anxiety and anguish since the government first proposed these plans."
The political party spokesperson said: "This calculated concession - whilst better than nothing - does little to address the year of concern that farmers have faced... with British agriculture under severe pressure, the government must go further and abolish this damaging farms tax."
New Terms
The government had contended that the change would help smaller farms while preventing the very rich from buying farmland as a tax avoidance scheme.
However, it has now retreated from the original proposal increasing the exemption limit to £2.5m.
Combined with an provision which allows farmers to pass on assets to their husbands or wives tax-free, this new policy adjustment means a partnership could pass on up to £5m in applicable assets.