In a move that’s sent ripples through Britain’s rural communities, the Labour government has scaled back its controversial inheritance tax reforms on agricultural and business property, raising the threshold from £1 million to £2.5 million. The decision, announced on December 23, 2025, marks a significant climbdown after more than a year of farmer protests, heated parliamentary debate, and mounting pressure from across the political spectrum.
The so-called ‘tractor tax,’ first floated at the 2024 Budget, was initially pitched as a way to close fiscal gaps by ending the decades-old 100% inheritance tax relief on farmland and business assets. Under the original plan, estates worth over £1 million would have faced a 20% tax on inherited agricultural assets starting April 2026—half the standard inheritance tax rate but still a dramatic shift for many family farms. The government projected the measure could raise £520 million annually by 2029, arguing it would curb the use of farmland as a tax shelter for wealthy investors while protecting smaller, working farms.
But as the April deadline loomed, the backlash was impossible to ignore. According to BBC News, farmers staged regular demonstrations outside Parliament, sometimes bringing tractors into central London in defiance of police warnings. The National Farmers’ Union (NFU) and other rural advocates warned that the policy would force many families to sell off land or equipment just to pay the tax bill. “The original changes to APR and BPR, contained within the finance bill, resulted in a pernicious and cruel tax, trapping the most elderly and vulnerable people and their families in the eye of the storm,” said NFU president Tom Bradshaw, as quoted by The Independent. “I am thankful common sense has prevailed and government has listened.”
Environment Secretary Emma Reynolds, announcing the reversal after MPs had left Westminster for the Christmas recess, struck a conciliatory tone. “We have listened closely to farmers across the country and we are making changes today to protect more ordinary family farms,” she said. “It’s only right that larger estates contribute more, while we back the farms and trading businesses that are the backbone of Britain’s rural communities.”
The revised policy, set to be introduced in the Finance Bill 2025 and effective from April 6, 2026, means that spouses or civil partners can now pass on up to £5 million in qualifying agricultural or business assets between them without paying inheritance tax. Above the new threshold, a 50% relief will apply to the remaining assets. This, according to the Department for Environment, Food and Rural Affairs, will halve the number of estates affected by the reforms. The number of estates expected to pay more inheritance tax in 2026/27 will drop from around 2,000 under the original plans to 1,100 under the new proposal, government figures show.
For many in the farming community, the change is a relief—but not a total victory. Gavin Lane, president of the Country Land and Business Association, told BBC Radio 5 Live that while the government deserves credit for recognizing the flaws in the original policy, “this announcement only limits the damage – it doesn’t eradicate it entirely. Many family businesses will own enough expensive machinery and land to be valued above the threshold, yet still operate on such narrow profit margins that this tax burden remains unaffordable.”
Some Labour MPs in rural constituencies had also voiced concern, with one, Markus Campbell-Savours, even voting against the government and facing suspension as a result. John Whitby, representing the Rural Research Group of Labour backbenchers, welcomed the threshold increase as “fantastic news.” But not all were satisfied. One Labour source, quoted by BBC News, described the timing of the announcement—after Parliament had broken for Christmas—as “bizarre,” adding that many MPs “were made to vote for it so recently.”
Opposition parties seized on the government’s U-turn. Conservative leader Kemi Badenoch declared on social media, “This fight isn’t finished. Other family businesses are still affected by Labour’s tax raid, and we will keep pushing until the tax is lifted from them too.” Liberal Democrat spokesperson Tim Farron went further, calling the entire policy “utterly inexcusable” and vowing to submit amendments in the new year to scrap the tax altogether. Reform UK’s Richard Tice dismissed the climbdown as “cynical,” arguing that “with British agriculture hanging by a thread, the government must go further and abolish this callous farms tax.”
The government, for its part, maintains that reform was necessary to address fiscal pressures and ensure fairness. As The Independent reported, ministers pointed out that 7% of the wealthiest estates account for 40% of the total value of agricultural property relief, costing the Treasury £219 million each year. “Difficult decisions” were needed, officials said, to fill the multibillion-pound fiscal hole inherited from the previous Conservative administration. A Treasury source told BBC News that while changing the thresholds would cost the government £130 million, “the principle of reforming the tax system remains. It’s right that the wealthiest estates pay their fair share, but smaller farms will get help.”
The new rules also combine agricultural and business property reliefs into a single £2.5 million allowance per individual, a change that some experts say could bring more diversified farms into the tax net. However, the government insists that only the largest, wealthiest estates will be affected, noting that nearly nine-in-ten farmers will now fall outside the scope of the reforms. According to Treasury data cited by The Independent, just 11% of estates claiming agricultural property relief exceeded the new £2.5 million threshold in 2022/23, compared to 31% above the earlier £1 million mark.
Beyond tax, the government has highlighted its broader support for British agriculture. As detailed in official statements, record funding—£11.8 billion—has been allocated to sustainable farming and food production over this Parliament, with annual investment in farming and nature recovery set to hit £2.7 billion from 2026/27. Funding for Environmental Land Management schemes is rising by 150%, and red diesel continues to benefit from an 80% tax discount, helping with farm operating costs.
The reforms also include a new Farming and Food Partnership Board, bringing together leaders from farming, food production, retail, finance, and government to strengthen the industry “from farm to fork.” Recent changes to planning rules are designed to cut red tape and help farmers expand with easier approvals for reservoirs, greenhouses, polytunnels, and farm shops.
Still, the inheritance tax climbdown is part of a wider pattern of reversals by the government since its July 2024 election. Earlier this year, ministers eased cuts to winter fuel payments and backtracked on plans for £5 billion in welfare reductions. The message is clear: when public outcry is loud enough, policy can—and will—change.
For now, most family farms can breathe a little easier, knowing they won’t face a hefty inheritance tax bill come April 2026. Yet with the debate far from over, and calls for the full abolition of the ‘tractor tax’ growing louder, Britain’s farmers—and policymakers—are bracing for more twists in the road ahead.
