Can I pay less inheritance tax on cryptocurrencies?
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My partner passed away last year and left me his wallet, which is mostly cryptocurrency. I’m about to pay my Inheritance Tax Bill (IHT), but I’m concerned about the fluctuating value of my holdings. These investments are worth considerably less than when the estate was assessed for IHT purposes. Do I still have to pay the same amount of inheritance tax, or would HM Revenue & Customs take into account the decline in value of these assets?
Satjivan Aujla, partner at Boodle Hatfield, says this is a topical issue given the price volatility of bitcoin and other cryptocurrencies in recent weeks. The price of bitcoin has fallen to around Â£ 20,000 in recent days, erasing the huge gains at the start of the year. In April, it peaked at almost Â£ 50,000.
Cryptocurrencies such as bitcoin are considered by HMRC to be property for Inheritance Tax (IHT) purposes, which means they are part of your partner’s taxable estate upon death.
Tax is only due if your partner’s estate exceeds Â£ 325,000 in total. Above this level, the IHT is billed at 40 percent, unless a relief or exemption applies.
You don’t say if you were married to your partner. This would help, as one of the most valuable IHT exemptions is the spousal exemption. Assets (including crypto assets) left with a spouse will receive 100% IHT relief (provided the surviving spouse is domiciled in the UK). If you were not married (or in a civil partnership), the exemption will not apply. The IHT is calculated on the value of the assets immediately before death.
IHT reliefs are available to executors when assets have lost value between the date of death and the time the asset is sold. This relief means that executors can get back part of the IHT if the value has fallen since the death. However, I am concerned that this sell loss relief may not apply to cryptocurrencies, as it usually only applies to listed lands or stocks, provided certain conditions are met.
The rules might be updated in the future, but as of yet, there is no relief for a cryptocurrency’s decline in value after death. This leaves executors in a difficult position and, in theory, could result in more tax than the value of the asset if it falls further. Executors have a duty to get the best possible price for assets and therefore it is better for executors to sell risky and volatile assets after death to avoid these risks.
There could be a risk that the beneficiaries of your partner’s estate will criticize the executors if they have not taken steps to sell the high-risk assets. Executors and trustees have broad investment powers and are generally not liable for losses provided there is no breach, but they should consider obtaining appropriate investment advice.
Of course, one of the other challenges executors face when dealing with cryptocurrency is proving ownership and gaining access to funds. Many people hold cryptocurrencies in virtual wallets which require 16-digit private keys to access them and therefore it is important that anyone with such assets makes sure that their executors can access the funds, given that ‘there is no central property register.
Did I miss the opportunity to apply for settlement status?
I am an EU national who has lived intermittently in the UK for the past 10 years, although for the past 14 months I have been permanently based in Germany due to the Covid pandemic. I understand that I have passed the deadline of June 30th to apply for UK settlement status. It’s too late?
Natasha Catterson, Partner at Fragomen Immigration Lawyers, states that although the deadline for applications to the EU Settlement Program was June 30, 2021, the program will remain open and individuals can apply late if they have reasonable grounds for not meeting the deadline. .
The Home Office provided examples of what would constitute reasonable grounds, including not being aware of the requirement to apply or not believing they were eligible due to excessive absences. The guidance also confirms that the more time has passed since June 30, 2021, the more difficult it will be to demonstrate that there are reasonable grounds for not meeting the deadline. It is therefore important that you submit a request as early as possible.
When you apply, you will need to determine whether you are eligible to apply for pre-established or established status.
To obtain settlement status, you must have spent five consecutive years in the UK, which usually means having spent more than six months within a 12-month period in the UK. You can rely on a historical period of residence, but you will need to provide proof that you were in the UK during that five-year period via, for example, local tax statements, bank statements or a letter from employer support.
In addition, you will also need to prove that since this five-year period of continuous residence you have not been away from the UK for more than five years.
If you have never spent five consecutive years in the UK, you may still be eligible to apply for pre-established status. You will need to prove that you were living in the UK before the end of the transition period on December 31, 2021, and normally provide proof that you were resident in the UK for the past six months to show that you did not. have not broken your continuous residence.
The Home Office has introduced concessions for those who cannot return to the UK due to Covid-19. It is now allowed to apply for a pre-established status when you have been away from the UK for more than 12 months for a ‘significant reason’, which includes people prevented from returning to the UK due to the pandemic. You will have to justify the duration and the reason for the absence.
If the pre-established status is granted, you will automatically have the right to apply for the established status after a period of five years.
The opinions contained in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results of reliance on responses, including any loss, and exclude all liability to the greatest extent possible.
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Our next question
Over the years, I have made generous financial donations to my three daughters. The older one benefited from it many years ago, the younger two more recently. If I die (I’m 82), would inheritance tax on donations fall on my younger daughters or my entire estate? I fear it will cause friction if the responsibility is not shared between my three daughters.