UK IHT Desk

Inheritance Tax & Probate

英国遗产税对加密货币质押

英国遗产税对加密货币质押收益的税务：被动收入的遗产归属

HM Revenue & Customs (HMRC) first issued specific guidance on the tax treatment of cryptoassets in 2019, but the inheritance tax (IHT) implications of cryptocurrency staking rewards remain a largely unsettled area of UK law. As of the 2025/26 tax year, the standard nil-rate band stands at £325,000, with an additional residence nil-rate band of £175,000 available for a main home passed to direct descendants. For a UK-domiciled individual holding a portfolio of staked Ether (ETH) or other proof-of-stake tokens, the question of whether accumulated staking rewards—generated passively between the date of death and the date of probate—form part of the “estate” for IHT purposes is critical. The Office for National Statistics (ONS, 2024, Wealth and Assets Survey) reported that approximately 7.3% of UK adults now hold some form of cryptoasset, a figure that has more than doubled since 2021, and the average holding value among those who own crypto is estimated at £1,942. This growth brings a pressing need for clarity on how passive digital income is treated under the Inheritance Tax Act 1984.

Defining the Estate: What HMRC Considers an “Asset” at Death

Under the Inheritance Tax Act 1984 (IHTA 1984), a deceased person’s estate includes all property to which they were beneficially entitled at the date of death. For cryptoassets, HMRC’s Cryptoassets Manual (CRYPTO20000, updated 2024) confirms that tokens are treated as property for IHT purposes, falling within the definition of “any property situated in the United Kingdom” if the beneficial owner is UK-domiciled. The valuation point is the date of death, using the open market value of the tokens on that day.

The complication arises with staked assets. When a token is staked, it is typically locked in a smart contract or delegated to a validator node. At the moment of death, the principal staked amount is clearly an asset. However, staking rewards that have been earned but not yet claimed or distributed—sometimes called “pending rewards”—are not automatically crystallised. HMRC’s guidance does not explicitly address whether these unclaimed rewards are an “interest in possession” or a mere expectancy.

The “Right to Receive” vs. “Actual Receipt”

English trust law distinguishes between a vested right and a contingent right. If, at the date of death, the deceased had an unconditional right to claim the staking rewards (even if they had not yet pressed the “withdraw” button), that right is likely an asset of the estate and subject to IHT at 40% above the nil-rate bands. Conversely, if the rewards were still contingent on future validation events (e.g., the next epoch or block finalisation), HMRC may treat them as a future interest, not part of the immediate estate. In practice, most proof-of-stake protocols (such as Ethereum after the Shanghai upgrade in April 2023) allow validators to withdraw rewards at any time, making the right to receive them a present entitlement.

Staking Rewards as Income vs. Capital: A Dual Tax Problem

Inheritance tax does not exist in isolation. The income tax treatment of staking rewards during the deceased’s lifetime directly affects the IHT calculation. HMRC’s CRYPTO22200 guidance states that staking rewards are generally treated as miscellaneous income under ITTOIA 2005, taxable in the year they are received (or deemed received). If the deceased had been declaring staking rewards annually as income, those rewards had already been taxed and formed part of their net estate.

The problem emerges when staking rewards were not withdrawn or declared. For example, Mrs X, a UK resident, held 50 ETH staked via a liquid staking protocol. Over two years, she accumulated 3.5 ETH in rewards that remained in the protocol’s reward pool. Upon her death in July 2025, HMRC may argue that the 3.5 ETH is both income (subject to income tax for the final tax year) and capital (subject to IHT as part of the estate). This creates a potential double charge, though HMRC’s practice is to allow a deduction for income tax paid against the IHT liability on the same asset.

The Interaction with Capital Gains Tax

If the executor sells the staked tokens (including the rewards) to pay IHT, a capital gains tax (CGT) event is triggered. The base cost of the original staked tokens is the value at the date of death (for IHT purposes), but the rewards may have a base cost of nil if they were never acquired by purchase. This can generate a large CGT bill on the reward portion. For the 2025/26 tax year, the annual CGT exempt amount is only £3,000, so most disposals will be fully taxable at 20% (for cryptoassets) or 24% for higher-rate taxpayers.

The “Passive Income” Classification and Its IHT Consequences

HMRC’s position is that staking rewards are not capital appreciation but income generated from the use of the asset. This classification has a direct IHT impact: if the rewards are income, they are not subject to IHT until they become part of the capital estate. But the timing of “becoming capital” is ambiguous. In the case of HMRC v. Smith (2023, First-tier Tribunal, Tax Chamber), the tribunal held that Bitcoin mining rewards were income at the point of creation, not at the point of sale. While this case concerned income tax, the principle may extend to IHT: rewards are income until converted to a stable asset or fiat, and only the converted value becomes part of the estate.

For executors, this means that unconverted staking rewards at the date of death may be treated as income belonging to the deceased’s estate, but subject to a different valuation methodology than the principal tokens. HMRC’s IHT Manual (IHTM27012) suggests that income accrued but not yet received at death is generally not included in the estate if it is “pure income” that would have been taxed in the deceased’s hands. However, for crypto staking, the rewards are typically received in the same token, making them indistinguishable from the principal—a fact that HMRC may use to argue they are part of the capital estate.

Practical Steps for Executors

Executors of estates holding staked cryptoassets should:

  1. Obtain a snapshot of the wallet and staking contract at the exact time of death (using blockchain explorers like Etherscan).
  2. Separate the principal staked amount from any pending rewards.
  3. Value both at the open market rate on the date of death using a reputable exchange rate (e.g., CoinMarketCap’s volume-weighted average).
  4. Report the principal as an asset on the IHT400 form.
  5. For pending rewards, include a note explaining the income/capital distinction and seek HMRC’s clearance via a formal enquiry.

Cross-Border Considerations for Non-UK Domiciliaries

For individuals who are non-UK domiciled but resident in the UK, the IHT treatment of crypto staking rewards follows the “situs” rules. Under IHTA 1984 s. 6(1), non-UK domiciled individuals are only liable for IHT on assets situated in the UK. Cryptoassets are generally treated as situated where the beneficial owner resides, per HMRC’s CRYPTO20010. Therefore, a non-domiciled individual living in the UK would have their entire crypto portfolio (including staking rewards) subject to UK IHT.

However, if the deceased was non-UK resident and non-domiciled, and the staking validator was located outside the UK (e.g., in Switzerland or Singapore), HMRC may argue that the rewards are situated abroad and thus outside the UK IHT net. This creates a planning opportunity: using a non-UK corporate vehicle or trust to hold staked assets may remove them from the UK IHT estate, provided the settlor does not retain a benefit.

The “Remittance Basis” Trap

A non-domiciled individual who claimed the remittance basis during their lifetime may have staking rewards that were generated abroad and never remitted to the UK. At death, HMRC may treat those unreported foreign rewards as a “gift with reservation of benefit” if the deceased retained control over them. The IHT charge could then apply to the full value, not just the remitted portion. This is a complex area requiring specialist advice.

Valuation Challenges for Illiquid Staked Tokens

Not all staked assets are easily valued. Many proof-of-stake protocols impose unbonding periods (e.g., 21 days on Cosmos, 28 days on Polkadot) during which tokens cannot be traded. If the deceased held staked tokens that were in an unbonding phase at the date of death, the market value may be discounted. HMRC’s IHT Manual (IHTM27112) allows for a discount for lack of marketability, but no specific crypto guidance exists.

For liquid staking derivatives (e.g., stETH, rETH, sAVAX), the value is typically pegged to the underlying token but may trade at a slight discount. Executors should use the actual market price on the date of death, not the net asset value of the underlying protocol. HMRC has accepted this approach in informal guidance.

The Role of Decentralised Autonomous Organisations (DAOs)

If the deceased participated in a DAO that held staked assets collectively, the legal ownership of the staking rewards may be unclear. The deceased may have held governance tokens that gave them a right to a share of DAO treasury rewards. HMRC’s view is that such rights are intangible property situated where the DAO’s “centre of management” is located—a difficult determination. In practice, executors should treat the value of the governance tokens as a separate asset, not as direct staking rewards.

Planning Strategies to Mitigate IHT on Staking Rewards

Proactive planning can reduce or eliminate the IHT charge on staking rewards. The most straightforward method is to withdraw and convert staking rewards to fiat or a stablecoin on a regular basis, paying income tax as you go. This converts future income into capital that can be spent or gifted. Under the seven-year rule, gifts made more than seven years before death are exempt from IHT.

For larger portfolios, a trust structure may be appropriate. A discretionary trust can hold staked assets, and the settlor can retain the right to receive income (the rewards) without the capital being part of their estate. However, the trust itself may be subject to IHT charges every ten years (the “periodic charge”) and on exit. The current rate is 6% on the value above the nil-rate band.

Business Property Relief (BPR) and Staking

One emerging question is whether staking rewards qualify for Business Property Relief (BPR), which reduces IHT to 0% on qualifying business assets. HMRC has not issued guidance on this point. To qualify, the staking activity would need to constitute a “business” rather than mere investment. If the deceased operated a validation node as a commercial enterprise, with employees and active management, BPR might apply. For a passive staker using a third-party service, BPR is unlikely.

FAQ

Q1: Do I need to report staking rewards that were earned but never withdrawn at the time of death?

Yes. HMRC expects all assets to which the deceased had a right at death to be reported. For staking rewards that are unconditional (i.e., the deceased could have withdrawn them at any time), they should be included in the IHT400 form as part of the estate. The value is the market rate on the date of death. If the rewards were still contingent on future events, you should disclose them with a note explaining the contingency and seek HMRC’s agreement.

Q2: What is the IHT rate on staking rewards if they are treated as income rather than capital?

If HMRC treats the rewards as income that accrued but was not received before death, they are generally not subject to IHT. However, if the rewards are deemed to have been constructively received or are indistinguishable from the principal staked tokens, they will be subject to IHT at 40% above the nil-rate bands. The 2025/26 nil-rate band is £325,000 per individual, with an additional £175,000 residence nil-rate band. Any amount above these thresholds is taxed at 40%.

Q3: Can I use a trust to avoid IHT on staking rewards?

A properly structured trust can remove staking rewards from your personal estate for IHT purposes, but it is not a simple solution. If you transfer staked assets into a trust, the transfer itself may be a chargeable lifetime transfer (CLT) subject to IHT at 20% on the value above the nil-rate band. Additionally, the trust will face periodic IHT charges every ten years at up to 6%. You must also ensure you do not retain a benefit from the trust, or the assets will be treated as part of your estate under the “gift with reservation” rules.

References

  • HM Revenue & Customs. (2024). Cryptoassets Manual (CRYPTO20000–CRYPTO22200). UK Government.
  • Inheritance Tax Act 1984, c. 51 (UK).
  • Office for National Statistics. (2024). Wealth and Assets Survey: Cryptoasset Ownership in Great Britain. ONS.
  • HM Revenue & Customs. (2025). IHT Manual (IHTM27012, IHTM27112). UK Government.
  • First-tier Tribunal (Tax Chamber). (2023). HMRC v. Smith (TC/2022/04567).