Bitcoin has crashed but could still give you a huge IHT bill
Inheriting volatile cryptocurrencies can be a minefield, says Harry Brennan
If you inherited a cryptocurrency such as Bitcoin, Cardano or Ethereum, would you have the faintest idea what to do with it? More and more people are owners of digital assets, but few have given thought to how they will be passed from one generation to the next.
Digital currencies in particular can be a huge source of stress for bereaved families sorting out a relative’s affairs.
Firstly, they can be incredibly volatile. In January 2017, the Bitcoin craze began as interest in cryptocurrencies soared. At that time one Bitcoin was worth about £740, before rocketing to almost £15,000 a year later. Its price has since plummeted to less than £3,000.
Virtually none of the new currencies was able to escape the bursting of the cryptobubble, with popular alternative Cardano falling by 97pc since its 2017 high. Another, Ethereum, has lost 87pc of its value since summer 2017. The entire cryptocurrency market as a whole has lost 86pc of its value. It grew from about €18bn (£14.2bn) in January 2017 to roughly $800bn just a year later, only to fall almost as quickly to just under $109bn, where it now stands.
When someone dies you have to add up all their assets and pay any inheritance tax due before you can distribute the estate. If an asset such as a cryptocurrency then dramatically falls in value, as it has done this year, not only will you see the value of your windfall diminish but you would have paid tax on lost money.
Secondly, digital currencies can be difficult to sell, and some have to turn to specialist brokers.
David Thomas of Global Block, a crypto broker, recently helped a family to sell a large portfolio of 27 different cryptocurrencies worth more than £3m held in a number of “wallets” – online accounts where digital assets are stored.
“While you can fill in a form with a stockbroker to sell your investments, it’s not so easy with crypto,” Mr Thomas said. “If you have inherited a load of currencies you have never heard of, you don’t know what the best exchange is to sell it on and you don’t know what the best price to sell at is. With something so volatile it can mean a difference of thousands of pounds.”
Gaining access to these assets is another potential headache, he added.
Banks and other financial institutions will release assets once you have notified them of a death and provided the relevant legal documents. With cryptocurrencies, however, if you do not have the specific password relevant to the wallet where the currency is held, that money is lost.
“Everyone has been concerned with the Bitcoin craze but has given little thought to what comes afterwards,” Mr Thomas said.
“Digital assets are growing and we need to think about how they will be passed on so they are not lost forever and so families don’t miss out.”
Ian Bond of law firm Talbots said similar issues applied to more traditional assets held in online-only accounts. “If all your
‘Everyone has been concerned with the Bitcoin craze, but not what comes after it’
correspondence is paperless and your family doesn’t have access to your emails, there is no way they are going to know that money is there,” he said.
In other cases valuable assets can spring up unexpectedly, or can be lost altogether.
“People simply forget to inform their relatives. I have dealt with estates where unfinished manuscripts have later been found on computers and suddenly heirs become the owners of valuable intellectual property,” Mr Bond added.
He added that people should make a comprehensive list of all the assets they own, especially those that could be at risk of being overlooked, and include it in their will.