Inherited Cryptocurrencies: Inheritance Tax Implications
The death of a cryptocurrency holder poses unique challenges: digital assets are not always easy to locate, and their tax treatment in an inheritance has specific features worth knowing.
Who pays which tax?
The deceased (IRPF)
Death does not trigger a taxable event in the deceased's IRPF regarding unsold cryptocurrencies. There is no "fictional sale" at the time of death (unlike in some other countries).
The deceased's IRPF will only report gains realized up to the date of death.
The heir (Inheritance Tax)
Cryptocurrencies are part of the estate and are subject to Inheritance and Gift Tax (ISD), managed by the autonomous communities (CCAA).
The taxable base for ISD is the market value on the date of death. For cryptocurrencies, this is the trading price on the date of the deceased's passing.
Reductions and Allowances
Each CCAA has its own reductions. In Madrid, for example, there is a 99% tax credit for direct descendants. Consult the regulations of your CCAA.
Acquisition Cost for the Heir
The heir acquires the cryptocurrencies at their value at the time of inheritance (the same value used as the base for ISD). This value is the acquisition cost for future sales in IRPF.
Effect: If the deceased bought BTC at €5,000 and it is worth €60,000 upon death, the heir "resets" the cost to €60,000. If they later sell it for €70,000, the capital gain is only €10,000, even though the deceased had a latent gain of €55,000.
The Practical Problem: Accessing Keys
The main challenge is not tax-related but technical: accessing the deceased's assets requires their private keys or exchange credentials.
If they were on an exchange:
- Contact the exchange with the death certificate and will.
- Exchanges have specific procedures for inheritances.
- Usual timeframe: 1-3 months.
If they were in a hardware or software wallet:
- You need the seed phrase or private key.
- If not documented during life, the assets may be permanently lost.
Planning: What to Do During Your Lifetime
To prevent your heirs from being unable to access your cryptocurrencies:
- Document your wallets and exchanges in a sealed envelope kept with a notary or in a safe.
- Inform a trusted family member of the existence of the assets (without revealing the keys).
- Consider using multisig with built-in inheritance.
- Some services offer a "dead man's switch" for automatic delivery of credentials.
ISD and IRPF: No Double Taxation
Paying Inheritance Tax does not exempt future gains in IRPF when the heir sells, but since the acquisition cost is updated to the inheritance value, in practice, the gain taxed in IRPF is only the increase after the death.
Conclusion
Inheriting cryptocurrencies can be a blessing or a headache, depending on how they were documented. From a tax perspective, inheritance tax applies to the value on the date of death, and the heir retains that acquisition cost for future IRPF.