Cryptocurrency has become a significant asset class for many investors in the UK. While most investors focus on capital gains tax and income tax implications, inheritance tax (IHT) is another crucial aspect to consider. This guide provides an overview of how IHT applies to cryptocurrency and what investors can do to plan effectively.
What is Inheritance Tax (IHT)?
Inheritance tax is a tax on the estate (property, money, and possessions) of someone who has passed away. In the UK, the standard inheritance tax rate is 40% on estates exceeding the £325,000 threshold (nil-rate band). Anything above this threshold is subject to taxation unless exemptions apply.
Does Cryptocurrency Fall Under Inheritance Tax?
Yes, HMRC considers cryptocurrency as property for tax purposes. Therefore, it is included in an individual’s estate for inheritance tax calculations. The valuation of crypto assets is based on their market value at the date of death.
How to Value Cryptocurrency for IHT?
The valuation of cryptocurrency for inheritance tax purposes follows these principles:
The value is taken as of the date of death.
The average price from multiple exchanges may be used to determine fair market value.
If the market is highly volatile, executors should document how they arrived at the valuation.
Who is Responsible for Paying IHT on Crypto?
The executor or administrator of the estate is responsible for declaring and paying inheritance tax, including any cryptocurrency holdings. If the deceased had a will, the executor named in the will takes on this responsibility.
IHT Exemptions and Reliefs for Crypto Investors Certain exemptions and reliefs may reduce the IHT burden:
Spouse or Civil Partner Exemption: Transfers to a spouse or civil partner are generally IHT-free.
Annual Gifting Allowance: Up to £3,000 per year can be gifted without IHT implications.
Business Relief (BR): In some cases, crypto assets held as part of a qualifying business may be eligible for business relief, reducing the taxable amount.
Tax Planning Strategies for Crypto InvestorsTo mitigate inheritance tax liability, consider the following strategies:
Estate Planning: Structure your assets to make use of available allowances and reliefs.
Trusts: Placing crypto assets into a trust can help reduce IHT exposure.
Gifting: Consider gifting crypto assets during your lifetime, ensuring that gifts are made at least seven years before death to avoid IHT.
Keeping Records: Maintain clear records of cryptocurrency holdings, including wallet addresses, exchange accounts, and transaction histories.
Challenges in Handling Crypto for IHTAccessing Private Keys: If heirs do not have access to private keys, retrieving assets can be difficult.
Volatility: The price fluctuations in crypto markets can make valuation challenging.
Regulatory Changes: Cryptocurrency taxation laws are still evolving, and future regulations may impact IHT planning.
Final ThoughtsCryptocurrency investors must include digital assets in their estate planning to ensure a smooth inheritance process and avoid unnecessary tax burdens. Consulting with a tax professional experienced in crypto taxation can help ensure compliance and optimise tax liabilities.
By proactively managing crypto holdings, investors can secure their wealth and ensure their digital assets are passed on efficiently to their heirs.
For expert advice on cryptocurrency inheritance tax planning, visit www.mycryptotax.co.uk to consult with experienced crypto tax professionals. ()
FAQ’s
How do I ensure my heirs can access my cryptocurrency after my death?
It is crucial to keep a secure record of your private keys, seed phrases, and exchange login details. You may consider using a trusted third-party custodian or a legal will to outline access instructions.
What happens if my cryptocurrency value changes significantly after my death?
The valuation for IHT purposes is based on the market value at the date of death. If significant fluctuations occur, the executor may need to provide additional documentation to justify the valuation used for tax purposes.
DISCLAIMER
© My Accountancy Team 2025 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. My Accountancy Team Ltd t/a mycryptotax.co.uk, cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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