Labour defends inheritance tax hikes as reforms 'get the balance right'

Labour has defended a major increase to inheritance tax arguing the changes strike the right balance. Plans are in place for the agricultural and business relief that currently means some farms pay no tax when passing on their estate to be slashed. Under the plans, the relief will only apply to £1million of assets being passed on, with the rest taxed getting 50 percent relief, meaning they are effectively taxed at 20 percent.

The Government has also announced plans for pension pots to become subject to inheritance tax, from 2027. Conservative MP Mims Davies asked the Government if it had considered having an independent review of the proposed changes for farmers.

Treasury minister Dan Tomlinson provided a response. He said ministers had met with several groups to discuss the issue since the changes were announced in the Autumn Budget 2024, but the Government believes the plans are "appropriate".

He said: "The Government believes its reforms to agricultural property relief and business property relief from April 6, 2026 get the balance right between supporting farms and businesses, and fixing the public finances. The reforms reduce the inheritance tax advantages available to owners of agricultural and business assets, but still mean those assets will be taxed at a much lower effective rate than most other assets."

The minister said that the levels of inheritance tax relief for farms will still be "significant" after the changes. He explained that those who do get a bill can pay the amount over 10 annual instalments, with no interest charged on the outstanding amount.

Mr Tomlinson also spoke about how many people would be affected by the changes: "The reforms are expected to result in up to 520 estates claiming agricultural property relief, including those also claiming business property relief, paying more inheritance tax in 2026-27.

"Almost three-quarters of estates claiming agricultural property relief, including those that also claim for business property relief, will not pay any more tax as a result of the changes in 2026-27, based on the latest available data.

"The reforms to agricultural property relief and business property relief are forecast to raise a combined £520 million in 2029-30. The independent Office for Budget Responsibility certified this costing at Autumn Budget 2024 and it does not expect the reforms to have a significant macroeconomic impact."

Inheritance tax is a 40 percent tax that applies to the total assets passed on when a person dies. Each individual gets a standard nil rate allowance meaning they can pass on £325,000 in assets without paying the tax, plus an extra £175,000 when passing on your main residence.

Any unused allowances can be passed on to your spouse or civil partner, meaning the second partner can get an effective £1million allowance when passing on their estate when they die.