The change to the reforms initially unveiled at Labour’s first budget last year comes after ministers “listened to concerns” of the farming community and businesses, the Department for Environment, Food and Rural Affairs (Defra) said yesterday.

The original Treasury plans to raise money as farmers pass their businesses from generation to generation triggered protests with tractors outside parliament and criticism from some Labour MPs in rural seats.

And Minette Batters, the former head of the National Farmers’ Union (NFU) who led an independent review for the government, warned that the proposals had led to farmers contemplating suicide to avoid the tax changes.

The higher threshold, which will take effect in April, will allow spouses or civil partners to pass on up to £5m in qualifying agricultural or business assets between them before paying inheritance tax – on top of existing allowances, Defra said.

Keir Starmer said he understood farmers’ concerns, but defended the ‘sensible reform’

Above that allowance, farmers will get 50pc relief on qualifying assets and will pay a reduced effective rate of up to 20pc, rather than the standard 40pc.

The number of estates facing higher inheritance tax will be reduced from around 2,000 under to original plans to up to 1,100, hitting only the largest farms, according to the government.

Farmers do not pay inheritance tax on agricultural and business assets which they pass on. Under Labour’s initial proposal, the full 100pc relief was to be restricted to the first £1m of property.

The plans caused consternation among some Labour backbenchers, with Penrith and Solway MP Markus Campbell-Savours losing the party whip earlier this month for voting against them.

Prime minister Keir Starmer last week told the Liaison Committee he understood farmers’ concerns, but defended the “sensible reform”.

He has changed course on a number of policies this year, with a U-turn on plans to cut winter fuel payments for pensioners and scaling back reforms to curb the soaring welfare bill.

NFU president Tom Bradshaw said the announcement would be a “huge relief to many” and would “greatly” reduce the tax burden for many family farms.

This fight isn’t finished. Other family businesses are still affected

Opposition parties said Labour’s rowback did not go far enough.

Tory leader Kemi Badenoch said it was a “huge U-turn by the government” on their “cruel, immoral” farm tax plans.

“It would have pushed farms to the brink, damaged our food supply, and hurt the people who work long hours to feed the country,” she said on X.

“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.”

The Liberal Democrats’ Tim Farron called for the government to scrap the “unfair tax in full”.

Reform UK deputy leader Richard Tice said: “This cynical climbdown – whilst better than nothing – does little to address the year of anxiety that farmers have faced in planning to protect their livelihoods.”