Read the Times Business briefing on minimising inheritance tax

Inheritance tax, faced by more and more families because of the steep rise in property prices in recent decades, would be abolished under Conservative proposals published today.

In a dramatic opening of the bidding war between the parties in advance of the next general election, a policy group headed by John Redwood will say that the tax - which at present applies to estates worth more than £300,000 and brings in about £4 billion a year for the Treasury - should go when economic circumstances allow.

Under the reform, estates on death would be liable to a reshaped capital gains tax. A person’s main residence would be completely exempt from tax. All assets held for more than ten years before death - including second homes - would be taken out of tax altogether.

At present people are taxed at 40 per cent on assets above the £300,000 threshold. There are about two million properties worth more than £300,000. The threshold is to rise to £350,000 by 2010, under plans in the last Budget.

The report from Mr Redwood’s economic competitiveness group makes plain that the tax cut could happen only if the economy could afford it. It would cost the Government of the day £2.6 billion. Inheritance tax raises £4 billion but the proposed change in capital gains tax would bring in a compensating £1.4 billion.

George Osborne, the Shadow Chancellor, who will attend today’s publication of the report in the City, will not embrace any proposal in it formally. However, he has already made clear that he regards the present structure of inheritance tax as unfair. In ideal circumstances it is a tax cut that he would favour, but he will insist today that the Tories will not promise any unfunded reductions at the next election.

The Government and other parties accept that inheritance tax has been becoming increasingly unpopular. Labour is likely to claim that the Tories could afford to implement the change only by making huge cuts in public services.

In other recommendations today the group will propose early action to abolish or reduce stamp duty on shares, to be followed by cutting stamp duty on property. It also proposes that corporation tax – from next year to be cut to 28p under government plans – should be 25p.

The report will set the seal on a remarkable political renaissance by Mr Redwood. The man who challenged John Major for the Tory leadership in 1995, and again threw his hat into the ring in 1997, was a disciple of Margaret Thatcher and his revival this week has been depicted by Labour critics as proving that - deep in trouble - David Cameron is lurching to the Right. The BBC apologised this week for illustrating his report with 14-year-old footage of Mr Redwood as Welsh Secretary failing to sing the words of the Welsh national anthem.

Some were claiming that the report’s emergence in midsummer, and the hype given to it by party headquarters, was a desperate attempt to grab the news agenda from a riding-high Gordon Brown.

Mr Redwood told The Times that the accusation was nonsense. It had been known for months that the report would come out some time in the summer. As for lurching to the right, that was nonsense, too. Mr Cameron had commissioned the report 18 months ago and had always been happy with its general direction.

“When we had our first conversation about it, it was clear that he knew what I believed in - an enterprise economy, more lightly regulated, and more efficiently run public services.”

Mr Redwood said that he did not see himself as an elder statesman. “I see myself as chairman of a policy group being asked to do a job on something that I knew about, where I could use my experience as a businessman, academic and politician,” he said. “I am happy to help David Cameron. I like what he is doing. I believe in the cause.”

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