From a tax perspective, HMRC has confirmed that cryptoassets can be subject to inheritance tax at death, at a rate of up to 40% on their value immediately before the crypto investor’s death.
Without a digital will providing instructions, the executors of a crypto investor’s estate face the potentially bleak prospect of trying to establish how to gain access to the deceased’s digital wallets and their cryptocurrency exchange accounts.
It may prove an impossible task, with executors unable to access the cryptoassets at all. In these circumstances, the executors will need to demonstrate to HMRC that, for all intents and purposes, the cryptoassets are irrecoverable and therefore worthless.
It remains to be seen whether HMRC would accept such an argument without challenge. The cryptoassets still exist on the blockchain and could objectively still retain a value; it is just that they cannot be accessed. It’s likely that the burden of proof will lie with the executors to satisfy HMRC that the private key cannot be retrieved.
A further area of risk for the executors of a crypto investor’s estate is the volatility. It is quite possible that executors could retrieve access to the deceased’s crypto portfolio, only to find that the value of the assets in the wallet has nose-dived.
Unlike investments in shares and land, there are no inheritance tax reliefs to take account of cryptocurrency dropping in value. Crypto traders should therefore invest in a digital Will if they wish to avoid their executors being stuck with a tax bill that wipes out the value of the estate.
Do you know the tax implications of your cryptoassests? Find out more here.