Where is your Bitcoin? For some digital assets, the answer is obvious. But for cryptocurrency — which exists only digitally across a distributed network — the question of location (or "situs") has no clear statutory answer in the UK. And for non-UK domiciled individuals, the answer matters enormously.

Why situs matters

For inheritance tax, a non-domiciled individual who is not deemed UK domiciled is subject to IHT only on UK-situated assets. Capital gains made by a UK-resident non-dom on UK-situated assets are taxable on the arising basis — the remittance basis does not apply to income or gains arising from UK assets.

HMRC's stated position is that cryptocurrency is situated in the UK if the person with control and access to it is UK resident. If that view is correct, a UK-resident non-dom's entire cryptocurrency holding — however it is stored — is within the scope of UK IHT and CGT, regardless of where any exchange or wallet is physically located.

Is HMRC right?

Not everyone agrees. Some argue that domicile should be the determining factor; others that the location of the exchange, or the beneficial owner rather than the nominee, should be considered. The position is not settled and no conclusive court decision has yet resolved the point.

What this means in practice

Non-UK domiciled individuals who hold cryptocurrency and claim the remittance basis should be aware that all gains and income from their cryptocurrency holdings may be taxable in the UK under HMRC's current approach. If you take a different view — for example, treating the situs as determined by domicile — it would be advisable to disclose this on your tax return to avoid any suggestion of non-disclosure.

Beyond the tax question, it is also essential to ensure that your executors know what cryptocurrency you hold and can access it on your death. This is a frequently overlooked aspect of estate planning for digital assets.

If you would like advice on how cryptocurrency holdings fit within your estate planning or tax position, please contact Paul Davidoff.