Cryptoassets held by individuals: Inheritance tax and pensions tax relief

03 August 2022

HM Revenue & Customs (“HMRC”) continues to update and expand its guidance on the taxation of cryptoassets held by individuals. In this series, we will explore various tax topics relevant to individuals buying, holding and disposing of cryptoassets.

Inheritance Tax

Inheritance tax typically arises on the deemed transfer of value that takes place on the death of an individual. It can also arise as a consequence of certain lifetime transactions.

In its guidance, HMRC has confirmed that it considers cryptoassets to be property for the purposes of inheritance tax.

Individuals who are UK domiciled or deemed domiciled for tax purposes are subject to UK inheritance tax on their worldwide estates. Non-UK domiciled individuals are, subject to certain exceptions, only subject to UK inheritance tax in respect of any assets they hold which are situated in the UK (ie UK situs assets).

There are no statutory rules to determine the situs or location of assets for inheritance tax purposes. Instead, the situs or location of assets is determined using general common law principles.

In respect of exchange tokens specifically, where the cryptoassets are distinct from any underlying asset, HMRC has expressed its clear view on how situs should be determined. HMRC’s guidance confirms that in its view the situs of an exchange token should be determined by reference to the tax residency status of its beneficial owner, for the following reasons:

  • exchange tokens have an economic value as such assets can be “turned to account”, for example, by exchanging the cryptoassets for goods, services, fiat currency or other tokens;
  • exchange tokens are a new type of intangible asset (which are different to other types of intangible assets, such as shares or debentures); and
  • the only identifiable party to consider is the beneficial owner of an exchange token.

This approach marks a departure from general common law principles and is unsupported by legal precedent or legislative authority. It follows that should the question of the situs or location of exchange tokens be put before the courts, it may well be answered differently.

It is also unclear how the situs or location of other types of cryptoassets will be determined.

Tax Relief on Making Pension Contributions

Subject to certain limits, income tax relief is available to members in respect of member contributions paid to registered pension schemes.

On the basis that HMRC does not consider cryptoassets to be currency or money, should cryptoassets be paid into a registered pension scheme, such contributions would not attract any income tax relief.

If an individual nevertheless contributes cryptoassets into a registered pension scheme, albeit without any income tax advantages, such cryptoassets would become part of the scheme assets which are subject to the tax rules governing registered pension schemes.

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Agency Database

  • Organisation for Economic Co-operation and Development (OECD)
    Term:
    Organisation for Economic Co-operation and Development (OECD)
    Other Names:
    organisation de coopération et de développement économiques
    Definition:
    international forum for promoting economic progress and world trade
    Area:
    Type:
    Policy Maker
    Country:
    International
    URL:
    http://www.oecd.org/
  • National Bank of Netherlands
    Term:
    National Bank of Netherlands
    Other Names:
    De Nederlandsche Bank (DNB)
    Definition:
    Area:
    Type:
    Regulator
    Country:
    Netherlands
    URL:
    https://www.dnb.nl/en/
  • Insurance Institute of Portugal
    Term:
    Insurance Institute of Portugal
    Other Names:
    Instituto de Seguros de Portugal (ISP)
    Definition:
    National authority responsible for regulation and supervision, either prudential or conduct, for insurance, reinsurance, pension funds and their management companies.
    Area:
    Type:
    Regulator
    Country:
    Portugal
    URL:
    http://www.isp.pt/en
  • Insurance Commission
    Term:
    Insurance Commission
    Other Names:
    Commissariat aux Assurances
    Definition:
    Official body in Luxembourg charged with the supervision of the insurance sector.
    Area:
    Type:
    Regulator
    Country:
    Luxembourg
    URL:
    https://www.caa.lu/
  • Commission of the Securities Market
    Term:
    Commission of the Securities Market
    Other Names:
    Comissão do Mercado de Valores Mobiliários (CMVM)
    Definition:
    Established in April 1991 with the task of supervising and regulating securities and other financial instruments markets. The competent authority for MiFID.
    Area:
    Type:
    Regulator
    Country:
    Portugal
    URL:
    https://www.cmvm.pt/en/Pages/homepage.aspx
  • Czech National Bank
    Term:
    Czech National Bank
    Other Names:
    Česká národní banka (CNB)
    Definition:
    Area:
    Type:
    Regulator
    Country:
    Czech Republic
    URL:
    http://www.cnb.cz/en/
  • Financial Services and Markets Authority
    Term:
    Financial Services and Markets Authority
    Other Names:
    Autorité des services et marchés financiers (FSMA)
    Definition:
    Responsible for the integrity of financial markets and fair treatment of financial consumers. Competent authority for issues under MAD. It is the successor of the CBFA (www.cbfa.be) and is the competent authority for the authorisation and supervision of payment institutions; MiFID.
    Area:
    Type:
    Regulator
    Country:
    Belgium
    URL:
    https://www.fsma.be/en
  • Financial Conduct Authority (FCA)
    Term:
    Financial Conduct Authority (FCA)
    Other Names:
    Definition:
    Responsible for consumer protection, market conduct, EU representation & prudential regulation of smaller firms.
    Area:
    Type:
    Regulator
    Country:
    UK
    URL:
    https://www.fca.org.uk/