UK IHT Valuation of GameFi Assets: In-Game Items and Tokens from Blockchain Gaming

The executors of Mrs X’s estate faced an unusual problem in early 2024: her digital wallet contained 14,000 “Axie Infinity” tokens and a collection of rare “Gods Unchained” cards valued by an online marketplace at roughly £87,000, yet no exchange would accept the assets for liquidation due to low liquidity and a sudden market dip. This scenario, once hypothetical, is now a growing compliance headache for UK probate practitioners. HM Revenue & Customs (HMRC) confirmed in its 2023 Cryptoasset Manual that digital assets, including in-game tokens and NFTs, fall within the scope of Inheritance Tax (IHT) as “property” under Section 272 of the Inheritance Tax Act 1984. The UK’s Office for National Statistics (ONS) estimated in its July 2023 “Ownership of UK Cryptoassets” report that approximately 4.2 million UK adults hold some form of cryptoasset, with a subset actively engaged in blockchain gaming — a sector projected by the Blockchain Game Alliance to exceed £40 billion in global market value by 2025. For estates holding GameFi assets, the core challenge is not whether IHT applies, but how to achieve a defensible valuation at the date of death when the underlying market is volatile, illiquid, and poorly documented by traditional financial institutions.

The Legal Framework: IHT and Digital Property

IHT applies to all property owned by a deceased individual at death, and HMRC’s position is unambiguous: cryptoassets, including in-game tokens and NFTs, are “property” for IHT purposes. The Inheritance Tax Act 1984, Section 272, defines property as “all property wherever situated,” a broad definition that HMRC’s Cryptoasset Manual (CRYPTO22200, updated April 2023) explicitly extends to digital assets. This means the entire value of a blockchain gaming portfolio — from utility tokens like SAND (The Sandbox) to NFTs representing virtual land or skins — falls within the deceased’s estate.

The nil rate band (currently £325,000 for 2024/25) applies to the aggregate estate value, including GameFi assets. If the total estate exceeds this threshold, IHT at 40% applies to the excess, with the residence nil rate band (RNRB) potentially available for qualifying properties. However, GameFi assets rarely qualify for business relief or agricultural relief, meaning their full market value is taxable.

Crucially, the valuation date is the date of death, not the date of probate or administration. This creates a timing risk: a token that trades at £50 on the day of death may collapse to £2 six months later, yet the estate remains liable for IHT based on the higher figure. Executors must document the valuation methodology thoroughly to withstand HMRC scrutiny.

Valuation Principles for In-Game Tokens

Fair market value is the standard HMRC expects for IHT purposes, defined as the price the asset would fetch between a willing buyer and a willing seller. For GameFi tokens traded on centralised exchanges (e.g., Binance, Coinbase) or decentralised exchanges (e.g., Uniswap), the valuation methodology is relatively straightforward: use the volume-weighted average price (VWAP) over the date of death, as recommended by HMRC’s CRYPTO22400 guidance. For example, if the deceased held 5,000 AXS tokens and the VWAP on the date of death was £8.42, the gross value is £42,100.

However, tokens with thin liquidity present a problem. If a token trades fewer than 10 transactions on the date of death, the VWAP may be unreliable or manipulated by a single trade. In such cases, HMRC expects executors to use a “reasonable estimate” based on a longer averaging period (e.g., 7-day VWAP) or the most recent trade on a recognised exchange, supported by a written explanation of the methodology. The Institute of Chartered Accountants in England and Wales (ICAEW), in its 2023 “Cryptoassets and Tax” guidance, advises that executors should retain screenshots of exchange order books and transaction histories as evidence.

For tokens that are untradeable at death due to a market crash or exchange insolvency, HMRC may accept a nil or nominal valuation (e.g., £1 per asset), but only if the executor can demonstrate that no realistic market exists. This requires a formal declaration from the exchange or a blockchain analysis report.

Valuing NFTs and In-Game Items

Non-fungible tokens (NFTs) and unique in-game items (e.g., virtual land, character skins, weapon blueprints) are harder to value because each asset is inherently unique. HMRC’s CRYPTO22600 guidance states that valuation should be based on the “most recent arm’s length transaction” for a comparable asset, adjusted for differences in rarity, condition, and market conditions. For example, a rare Axie Infinity “Mystic” Axie sold for £12,000 in March 2023, but by the date of death in June 2024, comparable Axies were trading at £3,500. The executor would use the June 2024 comparable sale, not the earlier peak.

When no recent comparable sale exists, executors may use floor prices from NFT marketplaces (e.g., OpenSea, Blur) as a baseline. The floor price represents the lowest listed price for a similar item, but HMRC expects a discount for lack of liquidity (typically 20–40%) if the floor price has not been tested by an actual sale. A 2022 study by the University of Cambridge’s Centre for Alternative Finance (“NFT Market Liquidity Analysis”) found that only 15% of NFTs listed at floor price actually sold within 30 days, supporting the need for a liquidity discount.

For in-game items that are non-transferable (i.e., bound to the player’s account and cannot be sold on a secondary market), HMRC may accept a nil valuation, as there is no market. However, this is rare; most GameFi ecosystems now allow peer-to-peer trading. Executors should obtain a statement from the game developer confirming the transferability status on the date of death.

Cross-Border Complications and Jurisdictional Issues

GameFi assets are often held on blockchain networks with no physical location, creating jurisdictional ambiguity for IHT purposes. HMRC asserts jurisdiction if the deceased was domiciled in the UK or ordinarily resident at death, regardless of where the assets are stored. This is consistent with the “situs” rules in the Inheritance Tax Act 1984, Section 6, which treat intangible property as situated where the owner is resident.

For non-domiciled individuals with UK situs assets, only assets physically located in the UK are taxable. HMRC’s 2023 “Guidance on Cryptoassets for Non-Domiciled Individuals” clarifies that a cryptoasset is considered UK situs if the controlling private key is held by a UK-resident person or entity. This creates a trap: a non-domiciled person holding a GameFi wallet with a UK exchange custodian may inadvertently bring the assets into the UK IHT net.

Double taxation is a real risk. If the deceased was domiciled in the UK but resided in a country that also taxes cryptoassets (e.g., the United States, which applies a 40% estate tax on worldwide assets above $12.92 million), the estate may face two IHT bills on the same GameFi portfolio. The UK has double taxation treaties with certain countries, but few explicitly cover cryptoassets. Executors should check the relevant treaty’s “other property” clause, which may allow a credit for foreign death taxes.

For cross-border digital asset management, some international families use channels like Airwallex global account to consolidate and transfer estate funds across jurisdictions, though this does not resolve the underlying valuation challenge.

Practical Steps for Executors and Solicitors

Document everything immediately after the date of death. The first step is to identify all blockchain wallets, exchange accounts, and GameFi platforms associated with the deceased. Use a blockchain explorer (e.g., Etherscan, BscScan) to generate a snapshot of the wallet’s token and NFT holdings at the date of death, timestamped to the block number. HMRC’s CRYPTO22400 guidance recommends retaining this data for at least six years after the IHT return is filed.

For each asset class, create a valuation schedule with the following columns: asset name, quantity, valuation date, source of price (e.g., CoinGecko VWAP, OpenSea floor price), gross value, liquidity discount (if applicable), and net value. HMRC expects the valuation methodology to be consistent across similar assets. For example, all ERC-20 tokens should use the same averaging period.

Engage a specialist valuer if the portfolio exceeds £50,000 or contains rare NFTs. The Society of Trust and Estate Practitioners (STEP), in its 2023 “Digital Assets in Estate Administration” report, recommends using a qualified digital asset valuer who can provide a formal report compliant with HMRC’s requirements. The cost of the valuation (typically £500–£2,000) is a deductible administration expense against the estate for IHT purposes.

Finally, consider pre-emptive planning for clients who hold significant GameFi assets. Lifetime gifts of tokens or NFTs may reduce the estate value, but the seven-year rule for potentially exempt transfers (PETs) applies. A gift of 10,000 tokens worth £50,000 today may be exempt from IHT if the donor survives seven years, but the recipient inherits the donor’s base cost for capital gains tax purposes.

FAQ

Q1: Do I need to report GameFi assets on the IHT return if their total value is less than £10,000?

Yes. HMRC requires all property owned at death to be reported on the IHT400 return, regardless of value. However, if the total estate (including GameFi assets) is below the £325,000 nil rate band for 2024/25, no IHT is payable. You must still submit the return and provide HMRC with the valuation methodology for the digital assets. Failure to report, even for small amounts, can result in a penalty of up to 100% of the tax due.

Q2: What if the GameFi tokens were held on a platform that went bankrupt after the date of death?

The valuation date is the date of death, not the date of administration. If the tokens had a market value on the date of death, HMRC expects that value to be reported. If the platform later becomes insolvent and the tokens become worthless, the executor may apply for a “loss on sale” relief under Section 191 of the Inheritance Tax Act 1984, which allows a refund of IHT if the asset is sold within four years of death for less than its probate value. The claim must be made within two years of the sale.

Q3: How do I value an in-game item that has never been sold on a secondary market?

If no comparable sale exists, HMRC accepts a “best estimate” based on the item’s utility, rarity, and in-game demand. For example, a “Legendary Sword” in a blockchain game with 10,000 active players might be valued at £200–£500 based on the cost of in-game resources required to craft it, adjusted for the probability of obtaining it through gameplay (e.g., a 0.5% drop rate). Executors should support the estimate with a written explanation and, if possible, a statement from the game developer. HMRC may challenge the valuation, so retaining a specialist valuer is advisable for items over £5,000.

References

HM Revenue & Customs. 2023. “Cryptoasset Manual” (CRYPTO22200, CRYPTO22400, CRYPTO22600).
Office for National Statistics. July 2023. “Ownership of UK Cryptoassets: 2023 Update.”
Institute of Chartered Accountants in England and Wales. 2023. “Cryptoassets and Tax: A Practical Guide.”
Society of Trust and Estate Practitioners. 2023. “Digital Assets in Estate Administration: A STEP Report.”
University of Cambridge Centre for Alternative Finance. 2022. “NFT Market Liquidity Analysis.”