I am preparing my will, following my retirement. I recently decided to invest a portion of my wealth in cryptocurrency and I plan to invest more in the coming months. I am thinking about any potential pitfalls I might need to navigate with crypto versus more traditional assets like real estate or cash.
What are the tax considerations? What about the security of my wallets, for example handing down the different passwords in a secure manner? I would also like to make sure that investing in a number of different coins and passing them all on separately is the most sensible approach.
Racheal Muldoon, partner at Charles Russell Speechlys, says that, in England and Wales, digital assets including cryptocurrencies, are recognised as legal property that can be left in a will. They are subject to UK taxation, including capital gains tax (CGT) and inheritance tax (IHT); and are capable of being held on trust.
Unlike other asset classes, digital assets pose unique challenges when it comes to modern estate and succession planning. Only with the correct expertise can these be overcome.
You should maintain a detailed digital asset inventory — recording the type of tokens you hold, quantities and storage methodology. This should be frequently updated and kept safe so that your representative can locate and manage your digital assets.
Separately, you must secure your private keys and seed phrases. A private key — typically a string of letters and numbers — acts as proof of ownership to access your cryptocurrency address and sign transactions. A seed phrase is a sequence of random words that stores the data required to access or recover cryptocurrency and is akin to a master key. Should these be lost; your digital assets will be inaccessible.
Many digital asset holders are turning to multi signature (multi-sig) wallet solutions. This entails multiple private keys being held by various parties, with a simple majority required for authorisation.
You should never record private keys or seed phrases in a will, as these become public documents upon grant of probate. Instead, a ‘cold storage’ solution should be deployed. This can be information written simply on a piece of paper placed within a storage deposit box. Alternatively, you may engage a trusted third-party custodian, such as a good friend or someone you trust, which is preferable in most cases.
Whichever your chosen custodial solution, you must clearly document access instructions outside of your will. This can be in a letter of wishes, providing authorisation for your agent to access your wallets.
In the UK, digital assets attract tax. Should you dispose of them in your lifetime, CGT may be payable. Meanwhile IHT will be due from your estate upon your death. It follows, that trusts can be a powerful tool for estate and succession planning. Whether a trust is appropriate will depend upon various factors, including the value of your estate.
Diversification of coins within a portfolio is a widespread practice to mitigate risk. However, from a succession and tax readiness standpoint, this approach may introduce unnecessary complexity and lead to unintended consequences. Be mindful that when selling, exchanging, or disposing of different tokens, it could trigger CGT liability, which will require careful record keeping and reporting.
Can I afford a mortgage on my own?
My ex-husband and I are separated, but still living together while we figure out next steps. One of the many things I worry about is housing. I cannot afford to buy him out or maintain the house by myself, but I am concerned I will not be accepted for a mortgage on my own. Would getting divorced impact which mortgage I can apply for?
Ciara Pugh a senior associate at Stowe Family Law, says concern over mortgages is very normal in separation and divorce. Property is where emotions can get particularly heated.
Divorce often changes individual mortgage capacity, bearing in mind any mortgage you had when married or cohabiting would have been based on two incomes rather than one (provided both parties were working). Naturally, the mortgage raising capacity will be lower on one income. This might mean the type of mortgage you can take out when you have finalised your divorce is very different to the one you had when you were married, especially as it seems you are unable to buy your ex-husband out and retain the family home.
When you are negotiating your financial settlement, it is necessary for both you and your ex to provide mortgage raising capacity assessments to the court. A mortgage-raising capacity is considered as a form of asset available to you in divorce. It therefore needs to be an accurate assessment of what is affordable for your going forward, as it forms the part of important settlement divisions. However, it is all well and good demonstrating a mortgage raising capacity, but the real question is whether it is actually affordable for you and in line with reality. Questions to ask might be when you plan to retire, the reality of your sole income and whether you will be able to afford the monthly repayments.
You may need to explore different mortgage options. For example, you might need a more flexible option to allow for adjusting to a new financial lifestyle, or support from third parties such as family members. It is highly recommended that you seek advice on this.
Our next question
I’m a 64-year-old expat Aussie and having been living and working in the UK for well over two decades, I am now planning for my retirement.
Australia has a compulsory pension scheme called superannuation — I have A$168,226 (£81,351) in my Public Sector Superannuation Accumulation Plan account.
The problem I have is that you can’t transfer money from an Aussie super account into a UK pension (which I have). Frustratingly, if you’re moving to Oz you can transfer your UK pension into an authorised Aussie super account (without charges and penalties) but it doesn’t work the other way around.
If I transfer the money into my UK current account will HMRC view this as income? Do you have any advice as to a way I can access my super in a tax- efficient manner?
Ultimately, your mortgage raising ability, and therefore the type of mortgage you can take out, post-divorce will depend on the financial settlement you reach with your ex. This will need to be made legally binding in the form of a financial consent order to be effective. For example, a lump sum or regular spousal maintenance payments can assist in bolstering any mortgage raising capacity. It is sensible to insure any spousal maintenance — this means you will continue to receive an income even if you ex-partner dies whilst you are supposed to be receiving maintenance.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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