Government raises inheritance tax relief for farmers to £2.5 Million
by David Maddock, Partner, Clarke Willmott LLP
The Government’s decision to increase the inheritance tax (IHT) relief threshold for farmers from £1 million to £2.5 million marks a significant and necessary shift in policy, particularly after months of concern and protest from across the agricultural sector.
This revision, due to take effect from April 2026, reflects a welcome recognition of the realities that family farms face today.
Agricultural Property Relief (APR) and Business Property Relief (BPR) have long been pillars supporting the intergenerational transfer of farms, enabling families to continue their vital role in food production and land stewardship.
When initial proposals sought to cap 100 per cent relief at £1 million, many feared the consequences: family farms forced to break up landholdings, sell productive assets, or take on unsustainable debt to meet tax obligations.
The sector made clear that these measures risked undermining the long-term resilience of UK farming.
The revised threshold of £2.5 million per individual - or £5 million for spouses and civil partners - is therefore not only a relief, but a recognition of the economic structure of modern farming. Farmland values, essential machinery and necessary diversification assets often push even modest family farms above £1 million in value.
The Government’s updated position reflects a more realistic appreciation of these factors and sharply reduces the number of farms now expected to face additional IHT liabilities.
This is also a policy change that aligns far more closely with the lived experience of the farming families we support at Clarke Willmott. Many were deeply worried about how the original proposals - what some had termed a “family farm tax” - could force rushed succession decisions or farm sales at precisely the wrong time. Increasing the threshold helps protect continuity, stability and the ability of the next generation to farm viably.
However, while this is an important and positive recalibration, it is not a complete resolution. For some larger but still family-run operations, particularly those with high-value land but low annual profit margins, the revised threshold may still present challenges.
Representative groups have rightly pointed out that certain businesses, especially in regions where land is exceptionally expensive, may continue to be drawn into the tax net despite operating on tight margins. The conversation about fairness and sustainability must therefore continue.
Nonetheless, it is encouraging to see policymakers truly listen. Farmers have repeatedly demonstrated the pressures they face - not only from market volatility, climate-related risk, and rising input costs, but increasingly from policy uncertainty. Rebuilding confidence requires clarity as well as fairness and this announcement is a step in that direction.
As we look ahead, our priority at Clarke Willmott will be helping clients navigate the new rules, engage in thoughtful succession planning, and safeguard the legacy and viability of their farms.
This policy shift provides a more stable foundation on which families can plan, invest, and grow. For many, it will come as a great reassurance at a critical moment for UK agriculture.
Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton. For more information visit www.clarkewillmott.com
David Maddock is a partner in the private capital team at Clarke Willmott in Taunton.
