Inheriting Bitcoin Just Became Legal — But HMRC's 40% Tax Bill Is Due in 6 Months (And a Nightmare Scenario Looms)

Crypto owners can now legally leave their Bitcoin to family when they die—but there's a catch. HMRC will take 40% of any estate over £325,000, and families have just six months to pay.

Britain quietly made history on 3 December when it became one of the first countries to recognize cryptocurrency as property that can be inherited, just like a house or savings account. About 8 million Brits—12% of adults—now own crypto, triple the number from 2021. Yet most have never considered what happens to their digital assets after they're gone, or the tax bill that awaits the inheritors.

How the 40% Tax Works

Inheritance Tax in the UK is charged at 40% on estates worth more than £325,000. That threshold has been frozen until 2030-31, meaning more families will be affected as house prices and crypto values rise.

Here's how it works in practice. Say someone dies with an estate worth £500,000—including property, savings, and Bitcoin. Subtract the £325,000 tax-free allowance, and you're left with £175,000 that HMRC can tax. At 40%, that's a £70,000 bill, due within six months. Miss the deadline, and interest charges start accumulating.

Not everyone faces this immediately. Married couples get a break: when one partner dies, everything passes to the survivor tax-free. The £70,000 bill usually arises when the second spouse dies, often catching adult children off guard decades later.

What's changed now is enforcement. The new law removes any grey area for HMRC—crypto is unambiguously taxable property, full stop. For Britain's 8 million crypto owners, many of whom still treat their holdings as experimental 'play money,' this means formal tax consequences most never anticipated.

The Nightmare Scenario Families Face

Imagine you're named executor in your brother's will—the person legally responsible for sorting out his estate. He dies unexpectedly, leaving behind £500,000 in Bitcoin. Within days, the reality hits: you owe HMRC £70,000 in six months.

But there's a problem. You can't find his wallet password or recovery phrase—the backup codes needed to access crypto. The Bitcoin is permanently locked in the digital system, unreachable by anyone in the family.

Yet, the inability to access the crypto doesn't make the tax bill disappear. Executors are personally liable for unpaid Inheritance Tax. If the estate's tax goes unpaid, HMRC can pursue the executor's own assets—your house, savings. You're legally responsible for the money locked in a digital vault you can't open.

Even families who do have the password face a tough choice. Selling volatile crypto within six months to cover the tax triggers Capital Gains Tax—a second tax on any profits made since the person died. Pay 40% Inheritance Tax first, then another 10-20% in Capital Gains Tax when you sell. More than half the Bitcoin could end up in HMRC's hands.

How to Protect Your Family

Crypto owners can protect their families by taking specific steps now. First, document everything: wallet passwords, recovery phrases, hardware wallet PINs, exchange account logins. Write it down on paper and seal it in an envelope marked 'Digital Assets—Open After Death.' Tell your executor exactly where it's stored.

Include cryptocurrency specifically in your will, with a reference to those sealed instructions. Beyond the basics, think strategically about accumulation. Every pound over that £325,000 threshold means 40p eventually goes to HMRC. Work out your total estate value—house, savings, investments, and crypto combined—to see if you're already in the danger zone.

Estate lawyers and financial advisers are bracing for a wave of crypto inheritance inquiries as word spreads about these rules. Some families will inevitably learn the hard way.

The Clock Starts at Death

The Property (Digital Assets etc) Act was designed to protect crypto owners and provide legal clarity. But it has also created a tax trap that most of the UK's 8 million crypto holders never anticipated—one where the six-month clock starts ticking the moment they die.

Disclaimer: Our digital media content is for informational purposes only and does not constitute investment advice. Please conduct your own analysis or seek professional guidance before investing. Remember, investments are subject to market risks, and past performance does not guarantee future results.