Inheritance tax will start at £1m say Tories

Only millionaires will have to pay inheritance tax under the next Tory government.

Radical plans to free ordinary Britons from the tax will be outlined by the Conservatives tomorrow as part of a big push to woo middle-class voters ahead of the general election.

Shadow chancellor Oliver Letwin will attack Labour for failing to act over a charge that has become increasingly common as house prices have rocketed in the South-East and London.

The tax, which is set at a swingeing 40 per cent, is a major source of income, raising £2.5billion a year for the Chancellor's coffers. One option being considered by the Tories is to increase the threshold at which the tax kicks in from the current £263,000 to £1 million.

Two and a half million homes with six million inhabitants are now potentially liable for inheritance tax and the number is rising. Even former council tenants in London are being drawn into the net.

Mr Letwin said there was no question that the Government had deliberately decided not to uprate the threshold.

He said: "Inheritance tax has become plain unfair. Once only the very rich paid it but under Gordon Brown it is hitting ordinary-families all over Britain." Some Tories want to scrap the charge altogether but Mr Letwin is wary of Labour charges that the party is only interested in helping the well-off.

Australia, New Zealand and Canada abolished inheritance tax years ago, while in the United States President Bush plans to phase out all federal estate duties by 2010.

Senior Tories say that houseprice inflation over the past decade means the levy is now one of "the most detested aspects of the Chancellor's taxation on the sly".

Although the housing boom is slowing, soaraway prices over the past seven years have brought thousands of homeowners into the inheritance tax bracket. Halifax has already reported a 61 per cent jump in the sale of ?1million properties during this year.

A report by financial consultant PricewaterhouseCoopers, meanwhile, shows that 32,000 estates a year now face a bill for inheritance tax, more than double the number seven years ago.

With a typical bill coming in at £87,500, the charge is a body blow to many families. The average UK home now costs £170,025, equivalent to 65 per cent of the tax threshold. This compares with 32 per cent in 1997. In the South-West the ratio is even greater at 73 per cent, while in London the average property is now worth 103 per cent of the tax threshold.