Grieving families who inherit cryptocurrency could face hefty tax bills on money they cannot access, Telegraph Money understands.
Financial Conduct Authority (FCA) figures show that about 10pc of people in the UK own cryptocurrency, with ownership doubling between 2021 and 2022.
Globally, around £23.7m is lost each day as cryptocurrency investors die without passing on the correct details, leaving the value unreachable.
But the money held in a cryptocurrency “wallet” is still liable for inheritance tax in the same way as traditional assets, and inheritance tax is calculated on the value of assets just before death.
It means an estate with £100,000 worth of cryptocurrency that cannot be cashed in could still be liable for £40,000 of inheritance tax.
The tax-free threshold for each person stands at £325,000. Above this threshold, a 40pc charge is due on the excess, whether it is held in property, cash or shares, or cryptocurrency.
The Telegraph and more than Conservative 50 MPs are calling for the divisive levy to be abolished. It comes as Prime Minister Rishi Sunak’s decision to freeze the tax thresholds until 2028 will see tens of thousands more unexpectedly hit by the charge.
Cryptocurrency surged in popularity in recent years with Bitcoin peaking in price in late 2021. It has now plummeted in value, with Bitcoin worth less than half that it was at its peak.
Paul Rossini, founder of software company Assetpass, said: “Unlike a traditional asset, passing crypto on in your will is virtually impossible.
“The access to your digital wealth and your cryptocurrency, or your NFT, is only possible with a unique key. So it’s one thing buying the crypto, that’s very easy on a platform, but it’s not very easy to go and retrieve those assets back from that platform.”
One high profile case saw investor James Howells lose access to £150m of Bitcoin when he threw away his laptop, which he now believes is in a landfill in South Wales.
Leaving the details in a paper will is the equivalent of handing over the keys to a bank account, Mr Rossini said.
He said: “It’s akin to, would you leave your bank account details, and your login, and your password with your solicitor today?
“There’s no procedure, there’s no protocol, there’s no law.”
Christopher Thorpe, a technical officer at the Chartered Institute of Tax, said HMRC was “simply not equipped” for cryptocurrency.
He said: “There’s absolutely nothing you can do about it, because you can’t sell it.”