Inheritance tax shake-up forces families to rethink where they hold wealth

Changes to inheritance tax are prompting more families to rethink not only how much wealth they will leave behind, but where they keep it.

Inheritance tax thresholds have been frozen since 2009. Since then, house prices and savings have increased, pulling more estates into the tax net even though many families do not feel any richer.

Another major change is due in April 2027, when unused pension funds will begin to count towards the value of an estate for inheritance tax purposes.

Pensions have traditionally been one of the most tax-efficient ways to pass money to loved ones. With that advantage being reduced, families are now reconsidering how their wealth is divided between pensions, cash and other assets.

Tim Grimsditch, managing director at Unbiased, said: "That one change is prompting a lot of people to reconsider the shape of their wealth, not just their will."

Kylie James, chief executive of LAX.BID, said families are "increasingly asking whether their assets are diversified enough and whether they're preserving wealth in a way that can withstand changing economic conditions over the long term."

Inheritance tax is not the only issue families need to consider. Inflation can quietly reduce the value of an inheritance held in cash.

The amount in the account may remain the same, but rising prices mean that money could buy considerably less by the time it is passed on.

Mr Grimsditch explained: "Cash feels safe, but its real spending power erodes over time, so an inheritance left sitting in cash can quietly lose value across the years it takes to move between generations."

As a result, some families are considering whether to spread their wealth across different types of assets instead of keeping most of it in cash, property or pensions.

Physical gold is one option attracting interest from people looking to diversify and protect the purchasing power of their money during uncertain periods.

Ms James said: "Physical gold has historically been viewed as one way to help preserve purchasing power during periods of higher inflation and economic uncertainty."

Kevin Marshall, CPA personal finance professional at Amortization Calculator, described gold as "a defensive asset rather than a wealth growth asset."

This means it is generally held to provide additional protection and diversification rather than to generate income or rapid returns. Mr Marshall said its appeal includes its portability and the fact that its value is not dependent on a particular bank or investment provider.

Every type of asset has its own benefits and risks when it comes to passing wealth to loved ones.

Cash is easy to divide and transfer, but inflation can gradually reduce what it is able to buy.

Property may increase in value or provide rental income, but it also comes with maintenance costs and potential tax bills. It can also take time and money to sell, making it less accessible when beneficiaries need funds quickly.

Pensions continue to offer tax advantages, although changing rules and restrictions on when money can be accessed may create additional complications for families.

Ms James said physical gold offered another option for those looking to spread their wealth across different assets.

She explained: "Physical gold offers something different: it's portable, globally recognised, highly liquid and has historically performed well during periods of economic and geopolitical uncertainty.

"I don't see gold as a replacement for other assets, but as an important complement within a diversified portfolio."

TallyMoney allows customers to hold and use money represented by allocated physical gold without having to buy or store gold bars themselves.

Each unit of its tally currency represents one milligram of physical gold, which is held on the customer's behalf in a secure vault in Switzerland.

Customers can hold savings in tally while continuing to access their money for spending or transfers through a TallyMoney Account.

However, the sterling value of tally moves in line with the price of gold, so it can fall as well as rise. Customers must also pay fees towards running the account and storing and insuring the gold.

Gold does not pay interest or produce an income. Kevin Marshall also warned that its value can change significantly and that physical ownership may involve storage and insurance costs.

Some forms of gold provide a tax advantage during the owner's lifetime. UK legal tender coins, including certain Britannias and Sovereigns, are exempt from capital gains tax.

However, this capital gains tax exemption does not mean the coins are automatically exempt from inheritance tax.

Despite those capital gains tax advantages, gold should not be confused with an inheritance tax planning tool. In the vast majority of cases, physical gold is counted as part of an individual's estate and will be factored into any inheritance tax calculation.

Mr Marshall was unequivocal on this point: "Physical gold should not be mistaken for an inheritance tax solution. In most cases, gold remains part of the estate and may still be included when inheritance tax is calculated."

The experts were united in emphasising that effective estate planning begins with clearly defined objectives rather than with any single asset.

Mr Grimsditch added: "The strongest estate plans start with the goal rather than the product: what you want to leave, to whom, and when. Once that's clear, the right mix of assets follows from it."

Mr Marshall echoed this, arguing that gold works best as one component supporting a balanced combination of cash, investments, property, pensions and proper estate planning.

All three experts stressed that families should seek guidance from a qualified financial or tax adviser before making decisions tailored to their individual circumstances.