The chancellor of the exchequer, Rachel Reeves, is understood to be standing firm against a U-turn on inheritance tax for farmers that came out of the recent Autumn Budget, despite the treasury analysing ways of mitigating the impact.
A No 10 spokesperson said: “We’re committed to implementing the policy as set out in a budget. We’re not considering any mitigations. It was obviously a difficult decision, but the economic situation the government inherited has required us to make tough choices.”
Since 1992, a tax exemption called Agricultural Property Relief (APR) has been in place, allowing farmers to pass on their property tax-free. This was done to strengthen farming and food security in the UK, since farming is not always a profitable business, with many farmers being described as asset rich, but cash poor.
What has been proposed in the Autumn Budget will change this. From April 2026, 100% inheritance tax relief will only apply to the first £1m of combined agricultural and business property. Above this amount, inheritance tax will be applied at a reduced rate of 20%, rather than the standard 40%. Farmers will be able to pay the tax in instalments over ten years, interest-free.
The environment secretary, Steve Reed, said that the tax change could raise £200m a year for the NHS and other services. He claims that this will not affect most farms, with the government estimating that only about 500 estates a year will pay more under the new scheme.
However, the accuracy of this figure is questioned, with many in the farming community arguing that only using figures from estates that qualified for APR last year is misleading. The new policy includes both APR and Business Property Relief (BPR)— which used to give farmers separate allowances for business assets, such as farming machinery, and APR could be claimed for their land. Because BPR was not considered when producing the estimate, many are concerned that the number of estates that will be affected has been underestimated.
Filling the news these past few weeks have been images of huge tractors rolling through Parliament Square and outside Venue Cymru, where the recent Welsh Labour Party Conference was held. Thousands of farmers have gathered in London and Llandudno to voice their opposition to inheritance tax for farmers announced in the Budget, causing many within the Labour Party to be concerned about the political implications of the tax change.
While some in Downing Street believe that the backlash from farmers will not be a major problem for the government as they do not represent the typical Labour Party voting base, around 100 Labour MPs have a rural aspect to their constituencies and won them for the first time in July by fairly tight margins. According to The Guardian, one Labour MP, who represents a heavily rural constituency, has spent much of the last few weeks sitting at the kitchen tables of farmers who were certain they would be affected by the tax changes, even if the new rules didn’t apply to them.
The MP said that social media was causing a lot of confusion for people regarding the policy but that it was crucial for Labour to be “in full listening mode” to farmers if they wanted to keep their rural seats at the next election. They felt that there was a lot of pent up anger in the farming community “because for the last fourteen years, the government has promised things and not delivered them”.
While the Treasury insists that there will be no U-turns on the policy, some Labour MPs still believe that it will be softened, with potential future mitigations being put in place. There has been an attempt to soften the blow. Steven Reed has met with the National Farmers’ Union (NFU) numerous times over the past month, while Huw Irranca-Davies, Deputy Welsh First Minister and Rural Affairs Secretary has met with a delegation of farmers and spoken to farming unions. However, it remains to be seen what the true political impact of this will be, especially ahead of the 2026 Senedd election which will be a month after the introduction of the tax change.