Head of Private Wealth, Hayden Bailey provides expert commentary in the Financial Times looking at the following scenario...

Q: Following my mother’s recent death, I planned to gift my 24-year-old son some of the inheritance so he can make some sensible investments. However, he’s keen to invest the money in digital assets such as crypto and believes the metaverse is the way forward. Should I be worried?

Hayden Bailey says: it can be sensible to wait some time after your mother’s death before making onward gifts, as there may be inheritance tax (IHT) to pay on your mother’s estate.

Ideally, you should wait for the estate to be administered before considering your own succession planning.  It may be possible for a gift to your son to be treated as having been made directly by your mother for IHT purposes if you use a deed of variation to alter the destination of your inheritance within two years of your mother’s death. Otherwise, the gift will be subject to a seven-year survival rule for IHT before it falls out of account on your death. 

If you make an outright gift to your son he will be free to spend or invest the money as he wishes. If you are worried about the risks of him investing in digital assets and prefer to retain some control over the money, you could consider putting the inheritance into a trust. Up to £325,000 can be placed into a trust without immediate IHT charge, and this could be combined with the use of a deed of variation, otherwise you will need to be excluded from all benefit yourself. You can be a trustee, and your son could be a trustee too. This way it would be very difficult for the money to be invested in cryptocurrency or other digital assets as there is generally no central registry that can evidence the trust’s ownership. Generally, trustees should avoid speculative and high-risk assets. 

If you are happy to make an outright gift, you might first want to discuss with your son what the money will be used for. You could introduce your son to a financial adviser or consider using the money as a deposit for a first home. You will not be able to direct the use of the funds once the gift has been made to your son unless you use a trust. Your son should also be aware if he invests in cryptocurrency that HMRC treats this type of investment as an asset for tax purposes, so if he makes a gain (or a loss) this is reportable and tax may be due on the disposal of the asset. It can be difficult to evidence ownership of digital assets, and so he should take advice on how the inheritance can be dealt with in the event of his death through making a will.

This article was first published in the Financial Times on 20 September 2023 (paywall). 

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