Are the heirs prepared to find, value and report cryptocurrency in an estate? Executors frequently face uncertainty about how HMRC treats cryptoassets, which items to include on an Inheritance Tax (IHT) account and how to prove a fair value at the date of death. This guide provides clear, actionable steps so estates can minimise disputes and file correct IHT forms.
Key takeaways: what to know in 1 minute
- Include all cryptoassets on the estate inventory. Any private keys, exchange accounts or custodial holdings are part of the estate for IHT.
- Valuation must use the best available market evidence at date of death. A single reliable exchange price or an average of reputable sources is acceptable when documented.
- Airdropped tokens can create taxable income events before death and valuation events after death. Determine when tokens were acquired and whether income tax or capital gains tax applied prior to death.
- Keep timestamped export files, exchange statements and wallet transaction history. HMRC expects precise provenance and valuation methodology.
- When no market price exists, use transparent timestamped rates and independent sources. Provide calculations, comparable token valuations and chain data.
How HMRC treats airdrops for tax purposes
HMRC treats unsolicited or received tokens (airdrops) in two distinct ways depending on how and when they were obtained. If the recipient received tokens in return for services, they are likely taxable as income when received. If tokens are received without consideration (for example as a reward for holding another token) HMRC may consider them income on receipt if the recipient has an entitlement and the airdrop is convertible to money.
For inheritance purposes, the critical points are:
- Pre-death taxable events: If the deceased received an airdrop that was taxable as income before death, that income should already have been reported in the deceased’s self-assessment for the tax year of receipt. That reduces the estate’s IHT base only indirectly by increasing the deceased’s lifetime income tax liabilities where relevant.
- Post-death valuation: Any tokens held at death form part of the estate and must be valued at the date of death for IHT. Even if tokens were originally taxed as income, the tokens still require valuation as part of probate.
Cite primary guidance where relevant: HMRC technical manual and cryptoasset guidance explain income vs capital treatment, see HMRC: Cryptoassets for individuals and the manuals in the HMRC internal pages HMRC.
How airdrops affect estate value
When tokens from an airdrop remain in the deceased's control at date of death, their market value at the valuation date counts towards the estate. If tokens were disposed of before death, any resulting capital gain or loss is part of the deceased’s final tax position, not the estate’s IHT valuation.
Determining fair market value of airdropped tokens for estate valuation
Fair market value (FMV) for IHT is the price at which a willing buyer and a willing seller would exchange the asset at the valuation date. For liquid, listed tokens FMV is typically the spot price on a reputable exchange at a specified time.
Recommended methodology:
- Identify the most liquid and reputable exchange where the token traded at the valuation date (date of death).
- Use the timestamped mid-market price or a short time-weighted average (for volatile tokens, 15–60 minute average) at the exact valuation time.
- Where a single exchange is not reliable, produce an average from two or more reputable exchanges and document sources.
- If the token had low liquidity or wide spreads, use bid/ask midpoints and disclose liquidity adjustments.
Provide a worked example in the estate file: the token balance, exchange(s) used, timestamps, price(s), calculation and resulting sterling value. If conversions occurred across chains (eg bridging), show the chain transaction evidence.
When an airdrop becomes taxable income in the UK and implications for inheritance tax
An airdrop becomes taxable income where there is a clear receipt of value to the individual and HMRC’s tests for income are met. Common scenarios:
- Airdrop paid in return for services or work: treated as earnings and subject to income tax and potentially National Insurance at the time of receipt.
- Reward for holding or participating in a protocol: may be income if the recipient had a chargeable entitlement and the token had a readily convertible value.
- Completely unsolicited free tokens with no value at receipt: may not be taxed as income at receipt but could be part of estate value if they later acquire value.
Implications for IHT:
- Income taxed before death remains part of the deceased's tax history but does not remove the token from the estate valuation if tokens remain at death.
- If tokens were converted into sterling prior to death and those funds remain in the estate, valuation is straightforward (bank balance). If disposed pre-death, any gain or loss sits in the deceased's final tax return and can alter the estate's net value.
Calculating capital gains after selling airdropped crypto from an estate
When executors dispose of crypto after death, capital gains tax (CGT) rules apply to the estate's disposals. The base cost for CGT is the market value at date of death. Steps to calculate:
- Establish base cost = FMV at date of death (in sterling).
- Sale proceeds = sterling received on disposal (net of transaction fees).
- Capital gain/loss = sale proceeds minus base cost.
- Apply allowable deductions (transaction fees, platform fees) and any reliefs applicable to the estate.
Example:
- Token balance: 100 ABC tokens.
- FMV at date of death: 100 ABC × £2.50 = £250.00 (base cost)
- Sale later at £4.00 (after fees) = £400.00
- Capital gain = £400 − £250 = £150 (subject to estate CGT rules)
Executors must report disposals by the estate on the estate tax return or estate’s own tax return where appropriate. HMRC guidance for executors should be followed and professional advice considered in complex cases.
Record-keeping and evidence HMRC expects for airdrops in probate
HMRC expects well-structured evidence. The stronger the provenance, the lower the risk of valuation challenges. Required records include:
- Wallet addresses and private key location (or access instructions).
- Exchange account statements with timestamps (CSV or PDF) showing balances and prices. Use the export function on exchanges where possible.
- Blockchain transaction IDs (txids) demonstrating receipt of airdrops, amount and timestamp.
- Screenshots are acceptable only when backed by exportable statements and original chain data.
- Correspondence with custodians or exchanges proving ownership and any KYC linking the deceased to accounts.
A suggested file structure for estate administrators:
- Folder 1: wallet index and access instructions
- Folder 2: exchange exports and statements (date-sorted)
- Folder 3: blockchain receipts (txid list and links to block explorers)
- Folder 4: valuation method notes and price sources
Using persistent, timestamped exports (CSV) reduces the chance of disputes. Avoid relying on single screenshots without source data.
Evidence HMRC will inspect first
- Transaction history showing the airdrop receipt.
- Timestamped exchange prices at date of death.
- Proof of control at date of death (wallet or exchange balance).
Valuing airdrops without a market price: timestamps and exchange rates
Where a token has no quoted market price at date of death (rare but possible for early-stage airdrops or tokens on small DEXs), use the following hierarchy:
- On-chain swap evidence: if the token can be swapped on-chain at the valuation date, use the swap rate from the transaction timestamp on a reputable DEX or aggregator.
- Comparable token method: value the token relative to a similar liquid token using clear rationale and maths.
- Project funding or secondary sale evidence: use recent private sale prices with documentation.
Always provide:
- Timestamped evidence (epoch/UTC) and the exact exchange rate used.
- Methodology explanation for why the chosen rate represents FMV.
- Sensitivity analysis showing value ranges if the methodology is uncertain.
Practical checklist for executors dealing with crypto in IHT
- Identify all potential custodians: personal wallets, custodial services, hardware devices, exchanges, DeFi protocols.
- Preserve evidence: export statements, copy seed phrase storage locations, record txids.
- Obtain professional valuation when tokens are material to the estate.
- Disclose the valuation methodology on the IHT400 or corresponding documentation.
- If in doubt about income events (eg taxed airdrops), check the deceased’s self-assessment records and consult HMRC guidance.
| Valuation method |
When to use |
Strengths |
Weaknesses |
| Reputable exchange spot price (timestamped) |
Most tokens listed on major exchanges |
Clear, verifiable, market consensus |
May not reflect low liquidity or spreads |
| Time-weighted average across exchanges |
Highly volatile tokens |
Smooths short-term spikes |
Requires multiple sources and calculations |
| On-chain DEX swap rate (timestamped) |
Tokens not on centralised exchanges |
Verifiable on-chain proof |
Subject to slippage and pool depth |
| Comparable token valuation |
No direct market price available |
Pragmatic when documented |
Requires robust justification |
Estate crypto workflow
📍
Step 1 → locate keys, wallets and exchanges
🧾
Step 2 → export transaction history and timestamps
💷
Step 3 → determine market prices at date of death
🧪
Step 4 → document methodology and prepare IHT valuation
✅
Result → file IHT forms with clear evidence to reduce queries
Advantages, risks and common errors
✅ Benefits / when to apply
- Clear valuation reduces HMRC follow-ups and delays in probate.
- Early identification of custodial access prevents loss of assets.
- Professional valuations add credibility for complex or illiquid tokens.
⚠️ Errors to avoid / risks
- Using a single unauthoritative screenshot without CSV or txid evidence.
- Ignoring airdrops that were taxable before death.
- Failing to document the valuation method or timestamps for volatile tokens.
Frequently asked questions
How should executors find missing cryptoassets?
Start with the deceased’s devices and paperwork, check email for exchange registration, and search bank statements for payments to exchanges; use KYC correspondence with custodians as proof of accounts.
Do airdrops always count as income for the deceased?
Not always; HMRC considers the facts, if tokens were paid for services or were convertible with a clear market value at receipt, they are more likely to be income.
Can a hardware wallet seed phrase be included in the estate inventory?
Yes. Location or custody instructions for seed phrases should be recorded and included on the estate inventory; do not publish seeds in public documents.
What if a token had no price at date of death?
Use transparent valuation methods: on-chain swap evidence, comparable token pricing or documented private sale evidence, together with sensitivity analysis and timestamps.
Must executors sell crypto to pay IHT?
Not necessarily. Executors can use other estate assets to pay IHT, but planning to sell crypto early avoids later volatility risks if funds are required to settle tax liabilities.
When should professional valuation be ordered?
Order a professional valuation when crypto forms a material portion of the estate, when tokens are illiquid, or when the classification and history of airdrops are complex.
Your next step:
- Gather all wallet addresses, exchange account details and any seed phrase locations and export transaction histories with timestamps.
- Determine which tokens were present at date of death and prepare timestamped valuations using reputable exchanges or on-chain evidence.
- Attach a valuation memo and evidence to the IHT filing and, where necessary, obtain specialist valuation or tax advice.
