George Osborne
George Osborne expected to announce plans to raise the inheritance tax threshold in the 2015 summer Budget (Getty)

George Osborne is set to announce plans to scrap inheritance tax on family homes worth up to £1m on 8 July.

Raising the inheritance tax on family homes was one of the key pledges of the Conservative party's election manifesto. It is thought the policy will be funded by a limit on pension contribution tax relief for people who earn more than £150,000.

Inheritance tax on homes that are passed onto a deceased individual's children or grandchildren will be raised to £500,000, from the current level of £325,000.

The Conservatives estimate the change will mean 94% of people in the UK will not have to pay inheritance tax on property as a result.

The average price of a home in the UK in 2014 was £272,000, rising to £564,658 for semi-detached properties in London.

Currently, the estate of a deceased person pays a 40% tax on any property worth more than £375,000. It is understood, Osborne will announce that this allowance will be increased by £175,000 from April 2017.

This means estates of deceased couples with properties worth £1m will pay £140,000 when bequeathing their homes to their children. Currently, these estates would pay £200,000.

In an article in the Times, Osborne and David Cameron said: "As we promised in our manifesto, we'll take the family home out of inheritance tax for all but the richest… It can only be right that when you've worked hard to own your own home, it will go to your family and not the taxman."

Changes to inheritance tax are expected to come into effect in April 2017.

Critics, including the Institute of Fiscal Studies (IFS), say the move will benefit the wealthiest in society, while distorting the housing market as older couples hang on to large homes instead of downsizing in order to pass them on tax free.

"The commitment to offer additional inheritance tax relief for owner-occupied housing will… distort an already broken system of housing taxation," Institute of Fiscal Studies director Paul Johnson said earlier this week. "It will do even more to lock older homeowners into possibly inappropriate properties."