Inherited cryptocurrencies: inheritance tax and personal income tax

Inheriting cryptocurrencies implies two different tax obligations: the Inheritance and Donation Tax (ISD) for the heir, and the possible regularization of the deceased's personal income tax. We explain everything to you.

Part 1: The deceased's personal income tax

When a person dies, their personal income tax for the current year closes on the date of death. The heirs must file the deceased's declaration for the period from January 1 to the date of death.

Important: If the deceased had cryptocurrencies with latent (unrealized) capital gains, those capital gains are not taxed in the personal income tax of the deceased. This is known as "deadman's capital gains" — latent gains from cryptocurrencies, stocks and real estate are NOT included in the deceased's personal income tax.

Part 2: The Inheritance Tax (ISD)

The heir pays the ISD on the value of the inherited assets, including cryptocurrencies.

Valuation of cryptocurrencies: At market value on the date of death.

Example:

• Heir receives 0.5 BTC from his father.
• BTC was trading at €100,000 on the date of death.
• Value declared in the ISD: €50,000.
• The heir pays ISD on €50,000 (along with the rest of the inheritance).

ISD bonuses vary greatly depending on the Autonomous Community. In Madrid, direct descendants have a 99% bonus. In others, you may pay a substantial rate.

Part 3: The heir's personal income tax when he sells

The heir acquires the cryptocurrencies with an acquisition cost equal to the value declared in the ISD (the market value on the date of death).

This is the key: The heir does NOT inherit the original acquisition cost of the deceased, but rather the value declared in inheritances. The capital gain from the pre-inheritance period is exempt from personal income tax.

Example continued:

• The father bought 0.5 BTC for €10,000 in 2017.
• He dies when he is worth €50,000.
• The heir declares €50,000 in the ISD.
• When the heir sells the BTC for €70,000, his capital gain will be:
  • 70,000 − 50,000 = €20,000 profit (not €60,000 from the father's original cost).

How to find private keys from inheritance

This is one of the most important practical problems: if the deceased did not leave instructions about his cryptocurrencies, the heirs may not know how to access them.

Recommendation: If you have significant cryptocurrencies, leave secure instructions (not in plain text) on how to access your wallets for your heirs. One option is a notarized envelope or in a safe with instructions on its location.

Conclusion

Inheriting crypto is more complex than inheriting bank money because it requires technical access to the assets. Fiscally, the heir pays ISD at the market value on the date of death, and that same value is his or her base cost for future personal income tax. The deceased's unrealized capital gains are not taxed — a significant tax advantage for large portfolios.