A Conservative government would raise the threshold for paying inheritance tax to £1 million, catching only the top 2 per cent of the richest households, George Osborne announced yesterday.

He delighted party activists anxious for solid policy stances before a possible autumn election by promising that the family home would effectively be taken out of tax, in a change that would benefit nine million families.

“For millions of people today sounds the death knell for death taxes,” Mr Osborne said in a well-received speech in which he declared that the Conservatives were the “party of aspiration”. The current threshold for inheritance tax is £300,000, meaning that anyone with an estate worth less than £1 million would avoid tax of up to £280,000 (40 per cent of £700,000) under the Tory plan. It would mean “only millionaires pay death duties”, Mr Osborne said.

He also promised that stamp duty would be abolished for anyone buying their first home for under £250,000, taking 200,000 people a year out of the tax. Together the two tax changes would cost the Exchequer £3.5 billion and Mr Osborne announced that much of that money would be regained by levying a flat-rate charge of £25,000 a year on 150,000 or so people who register in the UK for non-domicile status to protect their earnings from income tax.

Mr Osborne’s advisers said that introducing the “offshore domicile levy” would remove a question mark hanging over the City by safeguarding the concept of domicile status that has been under review by the Government for several years.

They added that from advance consultation it was not expected that many of the “non-doms” would leave Britain because of the new charge. About half of the 150,000 in question are thought to be American. For them the levy would be matched by an equivalent reduction in their US tax bill. He said: “It is easy to administer, difficult to avoid and strikes the right balance between a fair tax system and a competitive economy.”

Mr Osborne’s surprise announcement — he had successfully stopped news of the new threshold figure leaking to the media — produced a loud roar from a conference happy to hear a shadow chancellor promising to cut taxes. He had preceded it with several references to his ambition to cut tax when resources allowed. “For this party low taxes aren’t just for Christmas, they are for life,” he said.

In his keynote conference speech, Mr Osborne said: “In a Conservative Britain you will not be punished for working hard and saving hard.”

He added: “I will approach each Budget seeking ways, consistent with sound public finances and economic stability, to reduce taxes on businesses and families striving for a better life.

“That’s the real difference between this Chancellor and the next one. He is always looking for ways to put taxes up. I will be looking for ways to bring taxes down.”

However, the Shadow Chancellor may have got his sums wrong by 25 per cent or more, City lawyers and accountants have cautioned.

Calling the new levy a “poll tax for wealthy foreigners”, Andrew Tailby-Faulkes, tax partner at Ernst & Young, said the charge would most likely cause tens of thousands of young continental European City financiers to quit London for jobs in Paris, Rome or Frankfurt.

London has seen a big influx of bankers in their mid-20s to early 30s from the Continent over the past five years who have few if any assets in their home countries and who have earned all their income from City jobs.

“Those people with few responsibilities, no deep roots — children or mortgages — are more minded to exit sharpish. It also gives banks a headache if they have to compensate them to stay,” Mr Tailby-Faulkes said.

In his speech, Mr Osborne also vowed that a Conservative government would always put stability first, blamed Gordon Brown for the run on Northern Rock and urged him to “get on and call” an election.

“Under David Cameron, this conference says with one voice — united, we are ready to serve our country. We will put ourselves forward for office as the ally of those who aspire, the friend of those who are left behind, the champion of those who strive for a better life for themselves and their children.Last week in Bournemouth you saw the past. This week in Blackpool you see the future.”

Mr Osborne told Mr Brown: “If you want an election then get on and call it because your cynicism and your fear will lose every time to our hope and our optimism.”

Mr Osborne said lower and simpler taxes were vital to make Britain competitive but insisted he would not promise “unfunded, undeliverable” tax giveaways.“

He promised to switch air passenger duties to a tax on airline pollution, adding: “Every penny a Conservative government raises in new green taxes will go into our family fund and straight back to the taxpayer with matching tax cuts.

“No more stealth taxes. You will not be out of pocket with a Conservative government.”

Mr Osborne acknowledged that the Tories had had their own period of “appearing to be out of touch with the modern world; of appearing not to understand that people want to commit to each other in civil partnerships; of appearing not to understand that many women want both careers and families . . .

“But thanks to David Cameron we have worked hard to change our party. Now we are the champions of modern Britain.”

Mr Osborne said inheritance tax loomed increasingly over the aspirations of ordinary people, with more than a third of homeowners having to pay it. He said that a new dividing line had opened up in British politics — “the dividing line between a Labour Prime Minister who has taxed a generation out of home ownership and a Conservative Government that will abolish stamp duty for first-time buyers.

“The dividing line between a Labour Prime Minister who takes away the homes of those who have saved all their lives and a Conservative Government that takes people’s homes and savings out of inheritance tax. We have changed our party to face the modern world. Now let us change our country.”

Experts who criticised the Tories’ tax pledge say that in order to make it worthwhile to remain a non-dom, workers would have to earn overseas income of at least £62,500 on top of their UK earnings — assuming a worker on a higher rate of earnings. But to generate that level of income, most workers would have to own foreign assets of about £1 million, assuming they produced an income of about 6 per cent.

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