Letwin says Tories may scrap inheritance tax

Inheritance tax could be abolished under the Tories at a cost of £2.9bn, the shadow Chancellor, Oliver Letwin, said yesterday. But in a consultation paper, he admitted that a big disadvantage of scrapping inheritance tax for all was that it would benefit the super-rich, and it was expensive.

Senior Tory officials said the Conservatives were more likely to go into the general election committed to raising the threshold at which taxpayers pay inheritance tax to £500,000 at a cost of £1.6bn.

The Tories think that would appeal to many families who have been dragged into the wealth tax by the soaring value of housing. Raising the threshold to £1m would cost £2.5bn but Tories privately said that would be too generous.

The Chancellor, Gordon Brown, is resisting pressure by Downing Street to review the tax, charged at 40 per cent on estates worth £263,000 or more.

Shaun Woodward, the former Tory MP who defected to Labour, warned that the tax issue was a political "hand grenade". A spokesman for Mr Brown said Mr Woodward was "wrong".

The Tories plan to make tax cuts a central election issue. On Tuesday, they said capital gains tax could be abolished at a cost of £2bn. Michael Howard, the Tory leader, said he hoped to spell out their plans before the general election.

Paul Boateng, the chief secretary to the Treasury, said: "The only guaranteed cut you'll get from the Conservatives is a cut in spending on vital public services."