How Do I Pay Inheritance Tax on Crypto Assets?

At Towerstone, we provide specialist crypto accountancy services for UK investors and businesses. We have written this article to explain how crypto is valued and reported for IHT, helping you understand the tax and reporting position.

From experience, cryptoassets add a completely new layer of complexity to inheritance tax. I have dealt with estates where the crypto was worth a few thousand pounds and others where it ran into seven figures. In my opinion, the stress is rarely about the inheritance tax rate itself. It is about access to wallets, valuation issues, record keeping, and the reality that HMRC deadlines do not pause simply because digital assets are involved.

The simple truth is that cryptoassets are subject to inheritance tax in the UK in broadly the same way as other assets. What makes them different is the practical process of identifying them, valuing them, accessing them, and raising cash to pay the tax. This article explains how inheritance tax applies to crypto, who pays it, when it is due, and how it is actually paid in real life, based on what I see when estates involving crypto are administered.

By the end, you should understand how inheritance tax on crypto works in practice, what HMRC expects, and how to avoid the most common and costly mistakes.

How HMRC treats cryptoassets on death

HMRC does not treat cryptoassets as money. For tax purposes, crypto is treated as property. This means that when someone dies, their cryptoassets form part of their estate in the same way as shares, bank accounts, or other investments.

Inheritance tax is administered by HM Revenue and Customs, with guidance published via GOV.UK.

From experience, HMRC focuses on one central issue. What was the open market value of the cryptoassets at the date of death. Once that value is established, the crypto is simply included within the total estate for inheritance tax purposes.

Is inheritance tax always payable on crypto?

No, inheritance tax is not automatically payable just because someone owned crypto.

Cryptoassets benefit from the same inheritance tax allowances and exemptions as other assets. Inheritance tax is only due if the total value of the estate exceeds the available allowances. These may include the standard nil rate band, the residence nil rate band where applicable, and spouse or civil partner exemptions.

From experience, many estates that include crypto still pay no inheritance tax at all because the total estate value falls within these thresholds.

Who pays inheritance tax on cryptoassets?

Inheritance tax is paid by the estate, not by beneficiaries personally.

The legal responsibility sits with the personal representatives of the estate, meaning:

Executors where there is a valid will

Administrators where there is no will

These individuals are responsible for identifying cryptoassets, valuing them correctly, reporting them to HMRC, and ensuring inheritance tax is paid on time.

From experience, many people agree to act as executor without realising how much more complex the role becomes when crypto is involved.

When is inheritance tax on crypto due?

Inheritance tax follows the same timetable regardless of the type of asset involved.

The general rule is that inheritance tax is due six months after the end of the month in which the person died.

For example, if someone dies on 14 February, the end of the month is 28 February, and inheritance tax is due by 31 August.

From experience, this deadline is one of the biggest challenges in crypto estates, particularly where access to wallets or exchanges is delayed.

How cryptoassets are valued for inheritance tax

Cryptoassets must be valued at their open market value in pounds at the date of death.

This means:

Using the price at the date of death, not the date of sale

Converting the value into sterling

Using a reasonable and consistent valuation source

From experience, HMRC will usually accept prices taken from reputable exchanges, provided the approach is sensible and well documented. Where prices differ between exchanges, a reasonable average is often appropriate.

In my opinion, consistency and evidence matter far more than trying to optimise the valuation.

What cryptoassets must be included in the estate?

All cryptoassets beneficially owned by the deceased must be included.

This can include:

Crypto held on centralised exchanges

Crypto held in software or hardware wallets

Tokens held within DeFi platforms

NFTs and other digital assets

Wrapped or bridged tokens

From experience, the most difficult assets to identify are those held outside exchanges, particularly where private keys or wallet details were not recorded.

Accessing crypto after death

This is where crypto estates often encounter serious problems.

Unlike banks, many crypto platforms have limited or inconsistent death procedures. Personal wallets may be completely inaccessible if private keys or recovery phrases are lost.

Common issues I see include:

No record of wallet addresses

No access to private keys or seed phrases

Two factor authentication tied to a deceased person’s phone

Passwords stored only in the deceased’s memory

In my opinion, lack of access is the single biggest risk in crypto inheritance planning. Even if crypto cannot be accessed, it may still be taxable if ownership existed at death.

Paying inheritance tax when crypto forms part of the estate

Inheritance tax must usually be paid before probate is granted.

This creates a practical problem where the estate holds crypto but has little or no cash. Probate may be required to sell the crypto, but inheritance tax must be paid before probate is issued.

From experience, this situation is far more common than people expect.

How inheritance tax on crypto is actually paid

Inheritance tax must be paid in pounds. HMRC does not accept payment in crypto.

Common ways inheritance tax is paid include:

Using cash held in the deceased’s bank accounts

Short term executor or probate loans

Loans from beneficiaries

Temporary borrowing secured against estate assets

Crypto itself is often sold after probate is granted to reimburse those costs.

Can inheritance tax on crypto be paid by instalments?

No.

HMRC allows instalment payments for certain asset types, such as property or business assets, but crypto does not qualify. Inheritance tax on crypto must be paid in full by the deadline.

In my opinion, this makes liquidity planning particularly important where crypto represents a large proportion of the estate.

Selling crypto after death

Once probate is granted and access to wallets or exchanges is available, executors may sell crypto to raise cash or distribute assets.

From a tax perspective:

There is no capital gains tax on death

Crypto is rebased to its market value at death

Any gains or losses after death may be taxable to the estate

From experience, selling crypto relatively soon after probate often simplifies tax reporting, but this depends on market conditions and beneficiary wishes.

What if crypto prices fall after death?

Inheritance tax is based on the value at the date of death, not the eventual sale price.

If crypto prices fall significantly after death, inheritance tax is still based on the higher valuation. In limited cases, relief for loss on sale may be available, but it is complex and time sensitive.

From experience, this relief does not always apply cleanly to crypto and should not be relied upon.

What if crypto prices rise after death?

If crypto increases in value after death, inheritance tax is still based on the date of death valuation. However, capital gains tax may arise on the increase if the crypto is sold by the estate or by beneficiaries later.

Joint ownership and crypto held for others

Crypto is taxed based on beneficial ownership, not account names.

Issues arise where:

One person manages crypto on behalf of others

Wallets are shared

Funds are pooled between individuals

Only the portion beneficially owned by the deceased should be included in the estate.

From experience, poor documentation in these situations often leads to disputes or HMRC queries.

Crypto gifted before death

If crypto was gifted during the deceased’s lifetime, it may still affect inheritance tax.

Lifetime gifts of crypto are usually potentially exempt transfers, meaning the seven year rule applies. Gifts made within seven years of death may be brought back into the estate.

From experience, crypto gifts are often undocumented, which makes estate reporting far more difficult.

What records HMRC expects for crypto estates

HMRC expects clear and detailed records.

Executors should be able to provide:

Wallet addresses and exchange accounts

Transaction histories

Evidence of valuations used

Proof of ownership

Evidence of access where possible

From experience, good records significantly reduce delays and challenges.

What happens if inheritance tax is paid late?

If inheritance tax is not paid by the due date, HMRC will charge interest and may apply penalties.

HMRC does not extend deadlines because crypto access is difficult.

In my opinion, this is why early professional advice is so important where crypto is involved.

Common mistakes I see in crypto inheritance tax cases

From experience, the most common problems include:

Executors unaware that crypto existed

No access to wallets or exchanges

Incorrect or inconsistent valuations

Assuming crypto is taxed differently

Missing payment deadlines

Almost all of these issues are preventable with planning.

Planning ahead to make inheritance tax easier

Anyone holding meaningful crypto should consider planning ahead.

In my professional opinion, this includes:

Keeping an up to date list of cryptoassets

Recording wallet access details securely

Ensuring wills refer clearly to digital assets

Reviewing inheritance tax exposure regularly

Crypto does not change inheritance tax rules, but it greatly increases the need for organisation.

How beneficiaries receive crypto after tax is paid

Once inheritance tax and probate are dealt with, crypto can be transferred or sold in accordance with the will or intestacy rules.

This may involve:

Transferring crypto directly to beneficiaries

Selling crypto and distributing cash

A combination of both

Beneficiaries do not pay inheritance tax themselves. Any future tax arises only if they later dispose of the crypto.

Practical advice from experience

If you are an executor dealing with crypto, my practical advice is:

Identify crypto early

Secure access as soon as possible

Value assets carefully and consistently

Do not miss payment deadlines

Seek advice if values are significant

If you hold crypto yourself, planning now will spare your family unnecessary stress later.

Where this leaves you

So, how do you pay inheritance tax on cryptoassets?

From a tax perspective, crypto is treated like any other asset and included in the estate. From a practical perspective, it is far more complex. Access issues, valuation volatility, liquidity constraints, and strict deadlines make crypto one of the most challenging assets to deal with on death.

From experience, the biggest inheritance tax problems involving crypto are not caused by high tax bills, but by poor preparation. In my opinion, understanding how inheritance tax applies to crypto and planning for access and liquidity is just as important as understanding the tax rate itself. Crypto does not change the rules, but it does raise the consequences of getting them wrong.

If you would like to explore related investing and crypto guidance, you may find How do I prepare my crypto accounts for an HMRC audit and How do I prove crypto transactions if I used multiple exchanges useful. For broader investing context, visit our stocks and shares guidance hub.