Inheritance tax at 40 per cent is due on the value at the time of death, and that tax will have been due six months after the end of the month of death. A corrective account must be sent to HMRC and the tax paid, together with interest and any late filing penalties.
Given the volatility of the crypto markets, it is entirely possible that the value of the crypto asset might be a fraction of the value at death. In that case the amount of IHT will not change, as there is no loss on sale relief for crypto assets. The executors will need to find a way to sell the remaining crypto to pay the IHT.
The executors may find it difficult for the law firm acting in the administration to accept the sale proceeds of the cryptocurrency, or for an executor's account at a bank to be opened to hold the funds.
Banks will request source of wealth information, which the executors may not be able to provide, given the time that has passed since death.
There may be no bank record of the original purchase or how the private key came to be in the possession of the deceased. Worse, a beneficiary of the estate might be incentivised to bring a claim against the executors for not ascertaining details of the assets or for the potential loss by not selling them.
The executors may find themselves asking beneficiaries for the return of distributed funds to meet IHT charges.
Conversely, if values have increased since death, the executors may find themselves faced with a large capital tax liability on the estate for a sale of the assets, when the income tax affairs of the deceased and estate have long been closed.
Inclusion in wills
It is not necessary to include details of all assets in a will for it to be valid, and most wills refer to ‘my estate’ as catch-all to include all assets owned at death, which can change over time.
To that extent it is unlikely that the will document can help to evidence any digital asset holding. If the will does refer to the asset then this will alert the executors to its existence.
A will becomes a public document after probate and so it is not advisable to include private keys in a will for all to see.
A statement in a will saying ‘I leave all of my cryptocurrency to my children’ creates a range of difficulties in terms of the definition of the asset, as not all digital assets are cryptocurrencies, and the gift is not clear whether it is subject to IHT or whether tax is payable from the residual assets of the estate.
