The changing world of emergent technology leads to a plethora of exciting new possibilities in terms of what is possible.
As revolutionary technology becomes commonplace and the unthinkable becomes mundane, it is necessary to take a moment to ask some of the pertinent questions that hover around the innovative world of digital assets.
You may consider your Inheritance Tax (IHT) as being comprised of tangible assets that have a real-world presence.
However, the growing power and influence of the digital world have changed how a person’s wealth can be calculated.
We will consider the most pressing considerations regarding your digital assets, including which ones do and do not qualify for IHT considerations.
Liable digital assets
As you are likely most concerned with keeping your IHT bill as low as possible, it is best to consider which digital assets will be considered by HM Revenue and Customs (HMRC) as part of your estate for IHT purposes.
The digital asset that likely first comes to mind in this discussion is Cryptocurrency.
Given that Cryptocurrency serves a functional economic value, it is little wonder that it would be considered a part of a person’s wealth.
Cryptocurrency can include Bitcoin, Ethereum, and any other digital currency or meme coin, provided it has some market value at the time of your death.
Where this becomes complicated is with the erratic nature of the value of Cryptocurrency.
Although traditional currency varies in value, it does not compare to the speed at which Cryptocurrency can gain or lose value.
For IHT purposes, the value of your Cryptocurrency at the time of your death will be calculated.
Unfortunately, this makes it hard to plan around as this may be quite different from the value it is today.
On the subject of varying value, Non-Fungible Tokens (NFTs) and digital artworks are also considered liable for IHT.
Although a great number of NFTs lost their value, with some suggesting that 95 per cent of them were functionally worthless, there is still a marketplace for NFTs.
If you have any NFTs that have retained value, then these will be treated akin to Cryptocurrency – their value at the time of your death will be considered a part of your estate.
A more stable digital investment may concern domain names, websites, and other digital intellectual property.
Just as your ownership of a book or film would yield royalties, so too might your ownership of a digital space or piece of creative content that exists within a digital medium.
E-books and web designs are most likely to fall under this remit as these can be entirely self-published and managed yet still be of financial interest.
As with the other digital assets discussed here, it is the value of these pieces at the time of your death that will be part of your IHT considerations.
Digital assets are an emerging field of wealth and investment opportunities, so understanding the scope of them and the ways in which they interact with existing financial structures is imperative.
Exempt digital assets
As you do not own any of the content associated with them, digital subscriptions do not count toward your IHT bill.
This is part of a wider consideration of the transient nature of assets in so far as anything that does not have a permanent, concrete value is unlikely to be considered for IHT.
Social media accounts are worth more of a focus.
As some people do generate an income from them, there may be instances where aspects of a social media account could qualify for IHT.
However, a standard social media account is unlikely to be considered an asset in this regard, even if there is intrinsic value to the photographs or other content hosted on that profile.
Similarly, licensed software is unlikely to be considered an asset of yours as most licensing agreements ensure that the maker of the software retains full rights and the license expires when you do.
IHT considerations have changed significantly recently, and they will likely do so again in the future.
Seeking regular financial advice can help you stay ahead of any changes, particularly when exploring new avenues of wealth, such as digital assets.
For tailored advice regarding IHT and your estate, get in touch with our expert accountants today.
