THE Prime Minister has given a fresh indication he would like to increase the inheritance tax threshold so it hits only the "very wealthy".

David Cameron said people who did not feel "in any way mega-rich" were being affected by the tax.

He told a gathering of older workers and pensioners in London that people should be able to pass their family home to their children "rather than leave it to the taxman".

Inheritance tax is levied at a rate of 40% on the value of an estate above the £325,000 threshold - with married couples able effectively to combine their allowances to £650,000.

The Tories had promised in 2007 that when they were in Government they would raise the threshold to £1 million, but the policy did not feature in the Coalition agreement in 2010.

Mr Cameron said he would like to see more progress on the tax, and said Chancellor George Osborne was keen to address it.

He said: "Inheritance tax is a tax that should be paid by the very wealthy. I think you should be able to pass a family home on to your children rather than leave it to the taxman."

He said he had ambitions to go beyond the current £650,000 threshold for couples.

"I would like to see that go further because I think even at £650,000, particularly in some parts of the country, you see someone who has worked hard, they have put money into their house, they have done it up to improve it and they want to leave it to their children and they don't feel they are in any way the mega-rich, and they feel 'I should be able to do that without having 40% of it knocked off'.