Is it Possible to Inherit Cryptocurrency? The National Law Review Breaksdown Bitcoin Beneficiaries
The National Law Review featured an article on whether cryptocurrency can be inherited. According to the article, HM Revenue & Customs (HMRC) recently released guidance for those in possession of cryptocurrency, a digital asset. Although HMRC does not classify cryptocurrency as “money” or “currency,” it does liken it to investments. As a result, it is possible that the Capital Gains Tax will be relevant concerning cryptocurrency disposal and it also possible that income tax implications will come into play.
For those who invest, but pass away, the next question that arises is what happens to the cryptocurrency – that is, who will have access to the virtual wallet and how will access be granted in light of the intangible nature of cryptocurrency. The article discusses the case of a bitcoin miner named Matthew Moody, who passed away in a plane crash in California and who had at the time of his death a number of unspecified bitcoins. It appears that his relatives were unable to gain access to his online wallet without the private key, an as a result, they were not able to recover the bitcoins.
Unlike traditional assets where access is guarded by institutions, access to digital assets does not face such regulation. Rather, it is cryptocurrency’s decentralized nature that makes it difficult for one’s loved ones to access the cryptocurrency.
The article presents several potential solutions. For instance, it points to smart contracts, which are self-executing and whose terms are directly written into the blockchain code and are suited to the cryptocurrency. Some platforms have already started developing an inheritance system with smart contracts. When there are three years of inactivity, the transfer of the digital asset will trigger and select beneficiaries.
As for inheritance tax, according to the HMRC’s recent guidance, cryptocurrencies are chargeable to inheritance tax because they are considered as property for purposes of the tax.