A Bitcoin wallet with no access instructions is a bequest your executor cannot deliver

What counts as a digital asset

Digital assets encompass a wide range of property. Cryptocurrency -- Bitcoin, Ethereum, and thousands of other tokens -- is the most discussed, but the category is much broader. Online bank accounts and investment portfolios are digital assets, as are domain names, revenue-generating websites and YouTube channels, Substack subscriptions, digital photography libraries with licensing rights, NFTs, software source code, and intellectual property held in digital form.

For London professionals in technology, media, and financial services, digital assets can represent a significant proportion of total wealth. A freelance developer with valuable domain names, a photographer with a licensing library, or a crypto investor may have digital assets worth more than their physical property.

The common characteristic is that access depends on credentials -- passwords, private keys, seed phrases, two-factor authentication codes -- that exist only in the owner's control. Unlike a bank account where the executor can present the death certificate and grant of probate to access the funds, digital assets without access credentials are simply unrecoverable.

The legal ownership problem

Many digital "assets" are not assets at all in the traditional sense -- they are licences. A digital music library purchased on Apple iTunes, an ebook collection on Amazon Kindle, or a video game library on Steam consists of personal licences that are typically non-transferable on death under the platform's terms of service. These do not form part of the estate and cannot be inherited.

Cryptocurrency is different. The UK Law Commission confirmed in its 2023 paper on digital assets that crypto-tokens are capable of being property under English law, and can therefore be inherited. The question is purely one of access -- legal title passes under the will, but physical delivery requires the private key.

Domain names sit in a middle category. They are registered through registrars under contracts that typically allow transfer, but the transfer process requires access to the registrar account. Social media accounts, email accounts, and similar platforms each have their own policies on what happens on death -- some provide legacy contact or inactive account management tools, others simply terminate accounts.

The asset memorandum -- how to make digital assets accessible

The solution adopted by specialist will drafters is the asset memorandum -- a separate document, not part of the will itself, that contains the information executors need to access digital assets. The will references the memorandum and directs executors to it, without containing the sensitive information itself.

The memorandum should include: a list of all digital assets and their approximate values; the exchange, wallet, or platform where each asset is held; access instructions (without necessarily including the actual credentials in the memorandum itself, which should not be stored alongside the will in a solicitor's office); the location of hardware wallets, seed phrases, and private keys stored securely; and instructions for what to do with each asset.

The memorandum itself should be stored in a secure location known to your executor -- a home safe, a safety deposit box, or with a trusted person. Crucially, it must not be included in the will or stored with the will in a solicitor's file. If access credentials are in the will, they become a matter of public record on probate. And if they are stored with the will in a third-party's custody, access is delayed until the grant is issued.

HMRC treatment of digital assets on death

HMRC treats cryptocurrency as a capital asset for tax purposes. On death, there is no capital gains tax charge -- the asset is inherited at the market value at the date of death (the "CGT-free uplift"). However, the value of the cryptocurrency at the date of death is included in the estate for IHT purposes.

For executors, this means obtaining a market value of all cryptocurrency held at the date of death -- using the exchange rate on the relevant platform at the time. HMRC accepts the closing price on the date of death on a recognised exchange as the valuation basis. If the cryptocurrency is held on an exchange, this is relatively straightforward. If it is held in a self-custody wallet, the executor needs to access the wallet to establish the balance.

Income generated by digital assets -- staking rewards, yield farming returns, rental income from digital property -- is taxable as income in the deceased's hands up to the date of death and must be reported on the estate's income tax return.

Digital Assets and Wills -- Crypto, Accounts and IP -- common questions