Media reports that the UK’s coalition government will abandon the Conservative’s pre-election pledge to hike inheritance tax thresholds have prompted financial and legal industry figures to call on individuals to act fast in mitigating tax burdens.

The government is, according to a number of reports, going to freeze the “nil-rate” band of inheritance tax – the level at which IHT bites – at £325,000 ($510,018), reversing an old pledge to hike the threshold to £1.0 million. The U-turn, is, reports say, designed to help finance care for the elderly. The move also highlights how David Cameron’s administration is trying to reconcile views on how to raise revenues at a time when UK public finances - and the country’s prized AAA-credit rating - are under strain.

Withers, the law firm, argued that the proportion of UK households currently subject to IHT – currently around 3 per cent – will rise if the nil-rate inheritance tax band does not rise in line with inflation and rising property values.

“While the purpose of the freeze may be to ensure that care for the elderly can be funded, the government may find that it has a perverse effect as individuals feel forced to give away funds that might otherwise have funded their care,” Christopher Groves, partner in Withers’ wealth planning team, said.

Meanwhile, as if to highlight how the financial industry is quick to spot an opportunity, TIME Investments, an investment and tax planning firm, has rolled out a service, aimed at independent financial advisors, which uses Business Property Relief exemption from inheritance tax. The service, called TIME: ADVANCE, is targeting an uncapped annual return of 3.5 per cent.

More than 60 per cent of IFAs that TIME has surveyed expect clients to seek more help in mitigating inheritance tax liabilities. Under the new service, clients buy shares in UK firms that invest in unleveraged asset-backed trading firms, such as lending on property. Investments are fully exempt from inheritance tax if the investments are held for at least two years.

When the IHT Tax threshold of £325,000 was frozen in 2009, if the value had been linked to inflation, it would have risen to over £377,000, an increase of more than £50,000, TIME said.

Reform controversy

Among the expected government measures is a move to cap the amount that people must pay for social care costs at £75,000, with the taxpayer paying the remainder of such costs. The move comes at a time when governments in many developed nations are trying to cope with the soaring cost of an ageing population.

Commenting on the expected changes to social care funding, Mark Littlewood, director general at the Institute of Economic Affairs think-tank, said: "It is bad economics and awful morality to claim that a cap can be put on the costs of social care. As people live longer, we need to recognise that forcing young people to pay for the needs of affluent older people is deeply immoral,” he said.

"There should be no state-sanctioned cap on costs and we should reasonably expect those with high levels of capital - such as a house - to use their own equity to pay for their needs."