The values of several well-known crypto-currencies have crashed in recent days. At the end of last year, the Financial Conduct Authority estimated that over 2.3 million adults in the UK owned interests in crypto-assets. That being the case, it is inevitable that some will have died holding crypto-assets in their estates and, because of the recent falls in value, that some of their executors and legatees of those who have died will now hold assets with a current value which is very much less than it was at the time of the deceased’s death.
IHTA 1984 Part VI Chapters III and IV provide relief where an asset, falling within one of various classes of assets, is subject to IHT on a death and has been sold, depending on the class of asset concerned, one, three or four years, after the death for less than its probate value. Crypto-assets are not one of those classes of assets so it may well be that estates will face charges on assets which are now worth very much less than the value on which tax is charged. With the precipitate falls in the value of some crypto-currencies the tax charged may even be more than the current value of the asset in respect of which the charge is made.
The Government might correct the anomaly by replacing the specific reliefs for particular classes of assets with a general relief for all assets realised within three years of death (or perhaps four years for land and two years for all other assets) on the basis that otherwise, as the development of crypto-assets demonstrates, as economic life evolves IHT will inevitably be left behind.
As we explained in our comment of 11th October 2021 (‘Residence of Convenience’), our WFH HMRC is struggling to adapt to the advent of crypto-assets. Whether it will take the trouble to sponsor a correction of this anomaly remains to be seen.