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The Chain of Crypto Taxes

POSTED BY: Scott Sartin

18 November 21

The short answer to this is, yes. Presuming of course you meet all the required criteria for paying UK inheritance tax (IHT), then the value of your crypto will be included in your estate for IHT purposes. This potentially results in your estate having to pay 40% tax on the value of your crypto! Of course, for this to be valued properly for probate and for the completion of IHT forms, your executors will need access to your wallets.

IHT is often the over-looked tax, but with the new technologies that have brought crypto to life, anyone with internet access can amass life-changing wealth. It’s therefore extremely important that any crypto investor seeks expert wealth planning advice, to ensure that any crypto wealth is protected and passed down to the next generations. Not only this, wills will need to be updated to include what should happen to your crypto holdings, and ensure they match the wealth planning advice received.

As for the sharing of seed phrases and keys, this might just turn out to be a cryptographic exercise in itself. Your executors will need to know how to access your wallets to make sure all of this can happen. That’s where a letter of wishes accompanying your will can help, as it can help your executors to find your public and private keys to access you wallet, but without giving away the actual keys in the letter. Either way, it could be a job for Robert Langdon of The Da Vinci Code fame!

In some instances, your crypto wealth could be covered by business property relief (BPR) meaning it will fall completely outside of your estate, and will suffer no IHT. As the relief suggests, you would need to be in ‘business’ to obtain BPR, but over time there is no doubt that more and more crypto business traders will appear. BPR could also be achieved if you ‘trade’ through a limited company and operate, for instance, as a family investment company (FIC) in relation to all of your crypto activity. Trading through a company may also offer other tax benefits, particularly in terms of rewards earned by staking or yield farming, which otherwise attract Income Tax.

The rules here are simple. Don’t forget your keys, and don’t forget IHT.

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