Homeowners with properties worth up to a value of £1mn would be able to pass them on to their children without them incurring any inheritance tax, if plans drawn up by George Osborne are implemented.
However, the proposed measure will not be included in the 2015 Budget after being blocked by the Liberal Democrats.
The information comes following the leak of sensitive papers that also propose to reduce the inheritance tax bill on properties worth up to £2mn by £140,000.
Contained within the papers is an official note that acknowledges how the Chancellor’s move “will generally be very popular with the public and in the media.
“It will allow you to say you are exempting those with modest homes from inheritance tax (with up to £1million of assets) exempted in certain circumstances.”
Inheritance tax is often cited as one of the most unpopular UK taxes.
The proposed reform links in with public concern about rising house prices and how they increasingly result in estates, which can include a modest house, being subjected to ever-increasing amounts of inheritance tax.
The Conservative party is expected to announce the move officially, as part of its election campaign.
A new nil rate band would apply to the value of a family home, or other main residence, if it is transferred to a direct descendant of the deceased, including step children and adopted children.
However, according to the leaked papers, other family members would not be able to benefit from the changes.