Do I have to transmit the cryptography to my family by will?

I am an American national and have lived in London for nearly 30 years. I hold a substantial amount of money in cryptocurrency and am starting to think about how best to pass this on to my family and other people I want to include in my will. What is the best way to bequeath my crypto investments, and does my US and UK taxpayer status make a difference?

Lauren Rapeport, associate in the private client and tax team at Withers

Lauren Rapeport, associate in the private client and tax team at Withersa law firm, congratulates itself on having successfully navigated the lapping crypto markets. You now have the enviable task of deciding what to do with your winnings.

Crypto is, despite what some still believe, taxable in the UK. As a long-term UK resident, you will have to pay UK tax on your crypto declarations. Assuming you are not a crypto trader or earn income from mining, staking, or employment, you are subject to capital gains tax (CGT) up to 20% currently on your earnings when you sell or offer your crypto or trade for other crypto, after deducting personal compensation and losses.

The value of your crypto is also subject to Inheritance Tax (IHT), which is currently 40% where this value is passed on to the extent it exceeds your zero-rate bracket (currently £325,000), subject to exemptions and allowances.

When it comes to crypto, it’s wise to plan early to avoid losing your keys and crypto. If you hold the private keys – instead of having an account with an exchange, for example – you can transfer the crypto on the blockchain directly from your wallet to your recipient’s wallet, if they have one, or you can give him your private key.

The type of cryptoasset is also important. For example, some NFT contain sets of rights that may not be transmitted automatically. Ideally, you should document the gift and upload wallet data (if applicable) as proof.

A key consideration is whether to make donations now or upon your death. If you donate now, you can pay CGT on all winnings and you’ll need cash to pay it, but reduce your IHT bill on death if you survive seven years after the donation.

A donation at death may attract the IHT, but the base cost is brought to market value, wiping out your lifetime earnings. In both cases, there is no IHT if the value of the portfolio is less than your zero-rate tranche or if your spouse is the beneficiary.

Alternatively, you can sell your crypto and gift the proceeds, if you think your family and friends might prefer not to hold crypto.

If you leave crypto in your will, you will need to write it carefully. The will may contain gifts of specific wallets or tokens or it may establish a longer-term trust in crypto. Selecting an executor or trustee with relevant expertise is essential. Wills are public documents and therefore should not include sensitive information such as the private key or its location.

Finally, as a US citizen, you are also subject to US tax. The IRS taxes certain crypto events in a different way than HM Revenue & Customs, so you should not assume that the same principles apply. We regularly advise our Anglo-American clients on the importance of adopting a coordinated succession plan.

Are cohabitation agreements valid?

My partner and I are planning to move in together and I am pregnant with our first child. We don’t plan to get married, but should we write some sort of legal agreement to protect our finances? I’ve heard of cohabitation agreements, but are they worth the paper they’re written on?

Kate Van Rol, lawyer at 4PB

Kate Van Rol, a lawyer at 4PB, a family law chamber of lawyers, says Cohabitation agreements, as long as they are properly drafted, are legally binding contracts that can be enforced in court. There are many reasons a couple may choose to live together without getting married, but it’s important to know that choosing not to get married severely limits your financial rights to each other.

The rules for cohabitation agreements differ slightly from country to country in the UK, but all will spell out exactly what each partner is entitled to if they separate. An agreement is a document that two parties who live together (or plan to live together) can write and sign. It provides legal rights and protections that would automatically come with marriage and gives you some financial and legal security if one of you becomes ill, dies or separates. All parties living together can sign cohabitation agreements – you don’t have to be romantically involved.

A cohabitation agreement will give you certain rights, including those relating to financial security, property rights, access to pensions and other financial assets, tax benefits, and rights relating to children. They can be custom made to meet your needs.

Take financial security. You will not automatically be entitled to each other’s property without a marriage, civil partnership or cohabitation agreement. On the termination of the relationship or the death of either party, you will not necessarily have any rights to such property, or to your property (depending on the terms of your tenancy agreement or mortgage) unless they are bequeathed to you by agreement or by will. A cohabitation agreement may provide tax benefits that you would not otherwise be entitled to.

Let’s look at the rights relating to a child. The father will only have parental responsibility if he is named on the baby’s birth certificate. Parental responsibility gives each parent the right to make important decisions about the child, including decisions about their upbringing and health care.

With regard to the status of close relative without an agreement, you will not be automatically informed in the event of an accident, illness or death of your partner. You will not receive medical updates or have a say in medical decisions or, if applicable, funeral plans.

If you want to create a cohabitation agreement, start by considering your assets and those of your partner, and your proposal to divide these assets in the event of death or separation. This could include property and any savings, investments or pensions.

You can either draft a cohabitation agreement between yourselves or with the help of a family attorney. The cost will depend on the complexity of the deal.

The reviews in this column are intended for general informational 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 results arising from reliance on the answers, including any losses, and exclude all liability to the fullest extent.

Our next question

We have always been very close to my aunt but we are worried because she is showing more and more the warning signs of dementia. Her partner recently passed away and my aunt has been named executor, so she is looking to get her vast portfolio of assets in order, including property and funds. She also plans to prepare her own will to manage her assets. We want to support her and make sure her wishes are fulfilled. What should our next steps be?

Do you have a financial dilemma that you would like FT Money’s team of professional experts to address? Email your issue confidentially to [email protected]

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