Tories review inheritance taxes

Letwin says inheritance tax has become "unfair"

The Tories have said they are looking at possible cuts in inheritance tax but insist they cannot make promises so long before an election.

Conservative Treasury spokesman George Osborne criticised Gordon Brown for failing to raise the thresholds despite the huge hike in property prices.

Reports suggest the threshold could rise affecting estates of £1m or more.

This would dwarf the current £263,000 limit at which the 40% rate kicks in, relieving many middle class families.

'Targets'

The Tories say inheritance tax was originally designed for the rich but rising house prices mean it now hits many middle income families.

The tax-cutting plans have been described as targets rather than promises.

Mr Osborne told BBC Radio 4's Today programme: "People should be in no doubt we believe passionately in reducing the tax band.

"What we are trying to do is cut public expenditure by cutting out waste and bureaucracy without affecting schools and hospitals and people's frontline services and when we've shown we can do that we can move onto some of the unfair stealth taxes like inheritance tax," he added.

Details of the targets are due to be announced at the Tories' annual conference in just over a week's time.

These proposals do not add up Paul Boateng Chief secretary to the Treasury

It is hoped the move will woo thousands of middle class voters who would be relieved of the burden of inheritance tax under a Conservative government.

Oliver Letwin, the shadow chancellor, has criticised the current system.

He said: "Inheritance tax has become plainly unfair.

"Once only the very rich paid it, but under Gordon Brown it is hitting ordinary families all over Britain.

"Two and a half million houses with six million people living in them are already potentially liable to inheritance tax and the number is rising rapidly."

He added: "This is a problem that needs to be remedied."

Unpopular taxes

Inheritance tax raised £1.5bn for the government in 1996/7 when the threshold was £200,000 as Labour came to power.

In 2004/5 it is set to produce £2.8bn a year for the Treasury, with the tax paid on 32,000 estates each year.

Tax expert John Whiting told BBC News: "It is pretty modest but it is growing, growing steadily and projections are it's going to go up clearly quite nicely for Gordon Brown.

"It's not going to beat income tax but it will be useful money."

The Treasury suggests raising the threshold would cut the annual revenue from the tax to £0.3bn.

Services cut?

Paul Boateng, chief secretary to the Treasury, said: "These proposals do not add up and so you cannot believe anything the Tories say on tax and public spending.

"The only cut that is guaranteed is the immediate £20bn cut they are committed to making to vital public services such as schools, hospitals, transport, the police and defence."

Liberal Democrat Treasury spokesman Vince Cable said the Tory targets would produce a £2.5bn black hole in spending plans.

"The Tories would either have to raise other taxes or cut services," he told BBC News 24.

Mr Letwin is reportedly set to target other taxes - such as stamp duty and fuel tax - as part of Tory preparations for the next general election.

A plan to raise the threshold for income tax, put forward by co-chairman Lord Saatchi, is thought to have been rejected.

In August the Labour party said it would examine the findings of a report by a think tank proposing a 50% inheritance tax for the super-rich.