Cryptoassets + Inheritance Tax
With big fluctuations in crpytoassets, like bitcoin, understanding your inheritance tax liability if you are gifted cryptoassets in a will is essential.
HMRC consider cryptocurrencies as assets for inheritance tax (“IHT”) purposes which means that they are included when valuing an estate at death.
IHT treatment of cryptoassets
Every individual has a £325,000 threshold on their overall estate value before any IHT is due at death. Assets in the estate above this amount are taxed at 40%, unless there are other tax reliefs to make use of at the time of valuation.
If your partner or spouse dies and the value of their estate is being scrutinised, you can for example make use of spouse exemption.
In this case, all assets, including crypto asset, left you by your spouse will benefit from 100% IHT relief, providing you are a UK based. if you were unmarried, the IHT is calculated on the value of the assets immediately before death.
What if the value of the cryptoassets has changed since an estate was valued for IHT purposes?
The executors valuing an estate which includes cryptoassets are in a difficult position if for example, the tax due on the cryptoassets is higher than the current value of the cryptoasset.
Executors on a estate have a duty to obtain the best price reasonably possible for risky assets and generally they will look to sell off risky and volatile assets in an estate.
Another challenge for executors is proving the ownership of cryptoassets and getting access to the funds. Cryptoassets are generally held in virtual wallets that need a 16 digit key to access them so its important that if you, your spouse or partner, or anyone else where you are beneficiary of their estate, makes sure the executors have access to the 16 digit key. There is no central register for cryptoassets so this is vitally important.
Cryptoassets Tax Advice
Crypto investors are facing an increasingly complex tax landscape in the UK with HMRC guidance being under constant review. If you’re unsure how HMRC’s requirements impact you, or need help submitting the correct information, please get in touch to see how Mirandus can help.
