25 October 2018
Cryptocurrencies Don’t Have To Be So Cryptic
Interest in cryptocurrencies has peaked over the last few years, even with its volatile and unpredictable nature. This has resulted in a large number of people delving into the mysterious world of digital currencies.
Cryptocurrencies (“crypto”) are a digital or virtual currency that use cryptography for security. This method of security protects information and communications through the use of codes, so that information is only accessible to the intended individuals. Bitcoin, Ethereum and Litecoin have of late been the most popular choices for investment. Each crypto has a unique feature that separates it from the other 1,500 crypto-assets which are in circulation. It has been reported that almost three million people in Britain have made digital investments.
These currencies can be spent or traded in a similar manner to other traditional currencies such as the Great British Pound or the US Dollar. However, as the legislation in this area is still developing it is extremely important for invested individuals to make sure that they protect their funds to the best of their ability.
There is a lot that can be written around this area, however this article will mainly centre on how to account for cryptocurrencies when planning your estate. Due to the volume of interest which has been brewing around this sector, estate planning should be a central point of discussion for anyone who is thinking about investing into the digital market or already has a digital portfolio. Although this is not always a popular subject, planning your affairs during your lifetime gives you the opportunity to make sure that your estate will be dealt with as you would have wished.
Unlike usual bank accounts, there is no beneficiary designation when using digital currency. The secrecy involved means that tracking down such accounts may be near to impossible if the right measures are not put in place. Therefore, your estate and its potential beneficiaries could lose out on millions of pounds worth of inheritance. Without owning the security password, known as the ‘private key’, the personal representatives will not be able to access the assets. Your hard earned investments would simply lay dormant.
A lot of people choose not to discuss their investments with anyone and so if measures are not put in place this would make it much more difficult for your loved ones to gain information. It is important to make sure that you strike a balance between prematurely informing your loved ones about such investments and also making sure that measures are put in place to enable them to receive the assets at the right time. Therefore, speaking to an estate planning expert is essential.
In 2014 HMRC published its guidance on Bitcoin and other cryptocurrencies, in which it set out its position on taxation. It focused specifically on VAT, Corporation Tax (CT), Income Tax (IT) and Capital Gains Tax (CGT). And it was also explained that due to the evolutionary nature of crypto further guidance would be provided when appropriate. This goes to show the complexities which are involved within this area and how the rules continue to evolve. When gifting crypto there will also be a need to consider any potential Inheritance tax implications and these are some of the areas which a specialist would be able to provide assistance.
How to plan for the future?
The following points may provide guidance as to the next steps you should take in protecting your investments:
- You need to make sure that your executors are aware of the assets you have and how to locate them. Therefore, it is important to make sure that appropriate procedures are in place for them to have easy access in future. For instance, you may wish to consider placing your Private Key in a safety deposit box and providing further details in a letter of wishes which will be stored alongside your will. This way your executors will only have access to such information when the time is right.
- Plan your affairs now before it is too late. It is better to start planning now so that you are aware of the different factors which may need to be considered.
- Book an appointment with a solicitor - Here at Slater and Gordon Lawyers we understand the importance of having lawyers that speak your language. Booking a meeting with one of our specialist estate planners would allow you to pre-empt any issues that may arise in the future and keep your affairs in order.