Children to inherit parents' tax bill

Children who inherit large sums from the sale of the family home when their parents die could also receive a less attractive legacy: their parents' backdated council tax bill.

Stephen Byers, the former cabinet minister who is helping develop policy ideas for Labour's next election manifesto, will float his suggestion in a speech later this week.

In an address to the New Local Government Network conference on Thursday, Mr Byers is expected to say: "A deferred-payment scheme would provide all pensioner owner-occupiers with a choice - either to pay the tax as it falls due or to defer payment until the family home is sold ... Such a scheme is simple, not means-tested and uses the value of the home as security for the tax liability."

Ministers are worried by the increasing number of pensioners who struggle to pay their council tax bills. More than a million have failed to claim the council tax benefit to which they are entitled.

There have already been widespread protests over this year's proposed council tax rises, but the problem could become far worse in 2007, when the next nationwide property valuation is due.

The local government minister, Nick Raynsford, has threatened to force councils to cut spending rather than allow excessive tax increases.

Mr Byers's suggestion is modelled on the deferred payments scheme operated by local councils for elderly people who go into residential care homes. The patient is given free residential care for life in return for signing an agreement for the bill to be paid retrospectively from the sale of the family home.

Mr Byers wants the Treasury to lend the money to pay the council tax bills of "asset-rich, income-poor" pensioners. The loan would be repaid when the properties are sold.

The idea has yet to be agreed by Gordon Brown. The Deputy Prime Minister, John Prescott, who is in charge of local government, may also think that there are better ways he could use any extra Treasury money.

Some heirs may also object to having to settle council tax bills out of what they regard as their rightful inheritance, but the proposal is in tune with Tony Blair's interest in exploring new ways of financing public services, other than through direct taxes.