The UK government has watered down plans to make business and agricultural property assets over a certain amount subject to inheritance tax (IHT) by raising the threshold to £2.5m, up from £1m, it confirmed today.
In the Autumn Budget of 2024, the government announced that IHT relief on qualifying agricultural or business assets worth more than £1m would be slashed to 50%, down from 100%, meaning affected estates would pay an effective 20% rate of IHT on assets over this threshold.
The move has faced significant backlash from farmers and business owners, including protests across London, over concerns that the proposals would force many family businesses to sell to afford the IHT bill.
Experts have also highlighted that many families have based their financial planning around passing their businesses down through their family, and that the reforms would undo years of careful planning.
The government has now backed down and raised the threshold to £2.5m, significantly reducing the number of businesses or farms affected. It comes after it announced the allowance would be transferable between spouses, meaning they could potentially pass on up to £5m of assets free of IHT.
The government said in a statement: “Following the reforms to agricultural and business property reliefs announced at Budget 2024, the government has listened to concerns of the farming community and businesses about the reforms.
“Having carefully considered this feedback, the government is going further to protect more farms and businesses, while maintaining the core principle that the most valuable agricultural and business assets should not receive unlimited relief.”
Danni Hewson, AJ Bell’s head of financial analysis, said of the announcement: “Thousands of farmers and family-owned businesses will be celebrating on news the government has announced a retreat on its inheritance tax plans after months of protests. Combined with changes announced during last month’s Budget, it will allow spouses or civil partners to pass on up to £5 million in agricultural or business assets.
“For months, the government had been accused of being tone deaf when it came to the impact IHT changes would have on jobs and livelihoods, with many farmers and business owners warning of the potential impact on local communities and supply chains.
“The government has promised to deliver growth and today’s climbdown shows that they have been listening, but it follows months of uncertainty and worry about whether the next generation would be able to take over businesses that their parents had worked hard to create.”
