Conservatives promise to cut inheritance tax

BLACKPOOL, Oct 1 (Reuters) The Conservatives are set to announce today that they will reduce inheritance tax, as they scramble to prepare for a possible snap election.

The party, meeting in Blackpool for its annual conference, is trailing badly in the polls, with one survey over the weekend putting it 11 points behind Labour.

Prime Minister Gordon Brown is expected to wait until after the end of the conference before making an election decision.

A strong performance by Tory leader David Cameron this week, with a subsequent rise in his party's rating, could be enough to dissuade Brown from playing the early election card.

Conservative Treasury spokesman George Osborne told BBC radio he would cut, but not abolish, inheritance tax for the majority of families, paying for the measure by charging a levy on rich foreigners living in Britain who currently pay no tax on their overseas income.

He said the party based its calculations on a cautious estimate of 150,000 such ''non-domicile'' residents, many working in financial services, who would have the option of either paying a flat 25,000-pound a year charge or bringing their tax affairs onshore.

He said many were American citizens who would be able to set the levy against their US tax bill.

''They personally won't be out of pocket,'' Osborne said, adding that he did not think the move would drive many non-domiciles out of the country.

''Gordon Brown has long had a promise to do something about this and chase down their income. He's got a Treasury review out there which hangs over them. I think this certainty will encourage them to remain in this country when they might be thinking of taking their tax affairs elsewhere.'' Osborne said the levy would also be used to cover the 400 million pound cost of cutting stamp duty for nine out of 10 first time buyers on homes costing up to 250,000 pounds.

Rising house prices have pushed many homes in the southeast above the 300,000 pound inheritance tax threshold for 2007-08, at the same time as pricing many young people out of the property market.

Osborne also plans to remove tax penalties that discourage couples living together, but said it could take as long the lifetime of a parliament to achieve.

This was because he would cover the cost of eliminating this ''couple penalty'' by moving people off long-term benefit back into work, but this would take a few years to raise sufficient funds.

The threat of an October or November election has forced the Conservatives to accelerate their detailed policy review, which has seen them spend the last 18 months studying six areas including the environment, social justice and taxation.

In the place of further consultation, the party is rushing out policy decisions from these reviews during its four-day conference.

Cameron has already confirmed the party will not be adopting two unpopular proposals from its environmental review -- a tax on individuals flying and higher charges for shoppers using supermarket car parks.

Today Higher Education spokesman David Willetts will announce proposals to tackle the compensation culture to reverse a decline in schools taking children on sporting and outdoor activities.

Those trying to sue teachers for negligence after an accident would have to show there had been ''reckless disregard'' of obvious risks.

REUTERS SKB RN1433