Cryptoassets - lost private key

Trusts Discussion
1

This is not a client case, but rather a hypothetical question in relation to Cryptocurrency and the loss of a private key.

If a deceased individual held a valuable cryptocurrency portfolio on death, one of the challenges for the executors will be to locate the Private Key.

Without the Private Key the value cannot be realised and the cryptoassets are effectively worthless. In addition, the significant volatility of these assets could mean the Probate Value is significantly higher than the value when they reach the heir / are sold by the executors.

I am of the view cryptoassets would not benefit from the Fall in Value relief (generally for land and stocks / shares on a quoted stock exchange).

This could result in a potentially odd situation for an executor that cannot locate the Private Key. The probate value will be liable to IHT (without the Fall in Value Relief) and the personal representatives would need to submit a negligible value claim - meaning a more limited relief against future gains realised by the executors.

Perhaps an alternative filing position would be the probate value is zero (without the Private Key the cryptoassets have no value).

I would welcome other practitioners views.

2

As you say, without the private key the cryptocurrency cannot be accessed and, therefore, has no value.

My view is that the personal representatives should disclose the existence of the cryptocurrency account, adding a note that the private key cannot be located/identified and placing a “nil” value on the account. It will then be for HMRC to challenge the valuation, should it be considered appropriate. Of course, should the private key be located, or an alternative route to recover the account be identified, HMRC will need to be notified.

As regards a loss in value from that disclosed as at the date of death, I agree that as it currently stands there is no available relief from IHT to reflect that loss. It remains to be seen if HM Treasury/HMRC might be willing to extend the loss on disposal relief to enable such losses, mindful that there can be very substantial swings in value within a single day let alone over the time it might take to obtain a grant.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals