No matter what form an asset takes, it should (in almost all cases) be considered part of your estate and therefore serious thought should be given as to how it will be dealt with after your death. Digital assets are no different.
For many digital assets such as intellectual property rights, cryptocurrency or even online bank accounts there is the added consideration that these have their own financial value. This value may, depending on circumstances, be liable to be assessed for Inheritance Tax and must be reported accurately to HMRC when dealing with the administration of an estate.
An issue in many cases is that family and friends of the deceased who are dealing with the administration of their assets may have no idea of the extent or even the existence of digital assets and accounts. They will need to investigate fully, which in many cases involves establishing whether the digital asset will be part of the estate and / or whether it has actually only been leased to the deceased throughout their lifetime, as is the case with iTunes music and some other licensed products. The next step, and often most challenging one, is to actually gain access to the assets and arrange for their valuations.
There are real risks associated with a lack of thought being given to digital assets and the failure to leave proper information or instruction relating to them in the event of your death. I am sure that many people will be familiar with the stories of those who lost the private key to access their Bitcoin or failed to make this information available to family members, meaning that it is very unlikely that access can be regained to what can be an enormous amount of money! It is therefore crucial that details are recorded fully and accurately.
Once the asset has been identified, located, and valued correctly, the tax position must also be considered and reported to HMRC. Any value which is attributed to a digital asset will form part of your estate for Inheritance Tax purposes and there is a duty on those dealing with your estate to report this accurately and fully to HMRC and pay any tax due. If an asset is discovered later then the tax due plus interest will still require to be met. HMRC have issued specific guidance on cryptocurrencies which is available on their website and explains that these are to be treated as property for tax purposes and therefore must be declared.
In addition to points regarding access to your sentimental digital possessions (please see our previous article in relation to your digital legacy), there are some further steps which can be considered in order to help protect your digital assets.
- You should prepare a list of digital assets you hold, with details of the platforms they are held with and contact details for their customer service department or a specific advisor if appropriate.
- The list should also contain a rough value of each asset.
- This should be stored in a safe place, perhaps with a copy of your Will or Power of Attorney, and your family or friends who will be dealing with the administration of your estate should be aware of its existence.
- The list should also be kept up to date and be accurate as far as possible.
- You should seek advice regarding the tax treatment of your digital assets and how these would be distributed as part of your estate.
If you would like to discuss matters further regarding your digital assets, or planning for the future more generally, please do get in touch with our Asset Protection team.
The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers. Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.