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The UK government has been forced to freeze inheritance tax for farmers after a fierce reaction from rural communities and some Labor MPs.
The threshold for paying 20 per cent inheritance tax on agricultural land will rise to £2.5 million from April, up from the initially proposed £1 million, the Government said on Tuesday.
This means that spouses or civil partners with a combined estate of up to £5 million will not have to pay any inheritance tax on top of existing allowances.
Officials said the change would reduce the number of family estates facing inheritance tax bills from 2,000 under the original plans to around 1,100 now.
Environment Secretary Emma Reynolds said the government has “listened closely to farmers across the country” and is making changes to “protect” more typical family farms.
“It is right that larger properties contribute more, while we support the farms and commercial businesses that are the backbone of Britain’s rural communities,” he said.
The move is the latest in a series of U-turns this year, after the Labor government also canceled plans to remove winter fuel allowance from millions of pensioners and slash the disability welfare bill.
Labour’s original inheritance tax plan would have meant agricultural land owners would have had to pay a 20 per cent levy on land worth between £1.3 million and £3 million, depending on whether they were married or not and whether they owned a home.
But the plan generated a significant backlash from farming groups including the National Farmers Union, the Tenant Farmers Union and the Country Land and Trade Union.
Many farms are already under financial pressure due to rising costs and Brexit-related disruption, a government review last week found.
The inheritance tax proposals have also caused a rift within Labour’s own ranks.
Marcus Campbell-Severs, MP for Penrith and Solway in Cumbria, recently voted against the original motions and was suspended for voting against the government – meaning he now sits as an independent MP.
A dozen backbenchers abstained from voting. David Smith, MP for North Northumberland and one of the leading Labor MPs pushing for the change, wrote on Twitter on Tuesday that the government’s decision was “sensible and mature”.
A government official said the late announcement was because ministers had made sure to “get it right” after dealing with the agriculture sector for a long time.
He said the move was “not a U-turn” of the previous policy, “as larger properties will have to contribute more to the tax”.
“Tax policy is always under review and the reason for putting it out now is to ensure it is in the fiscal review in January,” he said.
Criticizing the government’s decision, Shadow Business Secretary Andrew Griffith said: “Imposing inheritance tax on family businesses is wrong and raising the threshold only discourages growth and success. The logical response would be to not charge additional rent or open another location.”
NFU chairman Tom Bradshaw said the changes meant that “although there is still tax to be paid, this will significantly reduce the tax burden for many family farms, working people in rural areas”.
Tim Farron, MP for Westmorland and Lonsdale and Liberal Democrat environment, food and rural affairs spokesman, said: “It is completely inexcusable that family farmers have had to endure more than a year of uncertainty and suffering since these changes were first announced by the Government.”
Richard Tice, deputy leader of Reform UK, said it was a “reprehensible move” by the government, which did nothing to address the year of anxiety suffered by farmers. “With British agriculture in the lurch, the Government must step up and end this cruel farming tax.”
