Alana Graham, Lodders’ tax specialist, explains.
When someone dies, their assets have to be accumulated and reported to HMRC for inheritance tax (IHT) purposes. Before this can be done, the cryptoassets must be valued. This can be done through various websites which explain the values of different forms of cryptoassets.
The type of cryptoasset then needs to be understood – which can be a complex process, as each cryptoasset has its own set of rules.
Furthermore, if the executors do not have the deceased’s passwords and keys, they will struggle to access the funds. Losing the password for these assets can mean the contents of hard drives containing cryptoassets are lost.
This is particularly important as passwords for cryptoassets are much more complex than ordinary passwords. As the passwords are unlikely to be changed, this means they can be given to your advisers or executors for safekeeping. It is important to ensure that whoever drafts your will or is given your passwords will keep them secure.
Whilst there is no specific area on IHT forms to alert HMRC of a person’s ownership of cryptoassets, they can be declared under the ‘cash’ box on the appropriate form, explaining what the cryptoasset is, and how the value was obtained.
Cryptoassets often trade on exchanges that do not use sterling, and as a result, must be converted in the self-assessment tax return. An appropriate exchange rate must be used, with details of how the assets were valued.
HMRC states that if the cryptoasset is just a digital representation of an underlying asset, then its location is determined by looking at the location of the underlying asset. However, if the cryptoasset is not an underlying asset, then the residence of the beneficial owner of the tokens is used to determine the location. Therefore, if they are a UK resident they will be liable to UK tax.
If you own cryptoassets, it is advisable to seek advice when drafting a will. Probate can be a complex process at the best of times, and with the added complexity of the newly emerging cryptoassets, it is more important than ever to ensure you are able to transfer these assets and wealth safely and securely to the next generation.
Alana Graham is a Barrister with over 27 years of experience in taxation, tax planning, and advising high net worth clients. To discuss taxation and cryptoassets, or any other tax-related query, please get in touch with Alana.Contact us
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