Wealth protection for crypto holders in the UK

Why crypto wealth needs special protection

The entire premise of cryptocurrency is independence from government controlled banks and traditional financial institutions. Bitcoin was created on that foundation. You only have to read through Satoshi Nakamoto's early posts on BitcoinTalk to understand that his motivation stemmed from a deep distrust of fractional reserve banking - a system he believed fundamentally violated the trust of depositors by enabling the quiet debasement of currency.

And this is the crux of the problem with crypto, because it was built around the depositor being the custodian. This isn't the case with other assets - banks have procedures, solicitors handle wills, assets pass through probate and trusts. Crypto doesn't work in quite the same way.

If you hold cryptocurrency assets, you are the bank. You are the custodian, and if something happens to you; a hack, a hardware failure, or something more permanent - those assets can become unrecoverable. 

This isn't theoretical. Something that's been in the news a few times in recent years is a UK-based early Bitcoin investor who misplaced a hard drive holding his private keys, and his girlfriend disposed of it unintentionally. He's been locked in a battle with the local council as he wants to dig up the local waste disposal site to try to find it. This is an extreme example, but it's actually estimated that there are over 3 million Bitcoins that have been permanently lost, often because someone died, misplaced their private keys or forgot a password. And all of these losses would have been avoidable with proper planning. Crypto has no recovery mechanism - and your estate needs to plan accordingly.

Why this challenge is unique in the UK

In the UK cryptocurrency is considered property but not currency. That means it is subject to both capital gains tax and inheritance tax, but unlike property or shares, your digital assets may not even be accessible to your executor if you haven't left clear instructions on how to retrieve them.

And unfortunately most solicitors and wills are years behind in understanding how to handle crypto - which leaves your family, and your wealth, in limbo.

This conversation isn't about paranoia - it's about responsibility. If you have spent years investing and building value in Bitcoin, ETH or any other token, preservation is as important as accumulation.

What follows is a brief but comprehensive UK-focused guide on how to safeguard your assets, pass them on legally and ensure that your holdings don't become just another entry in the ledger of permanently lost coins.

Custody is your first vulnerability

The moment you acquire cryptocurrency, the question of custody becomes your single greatest point of risk. 

Unlike traditional assets, there is no institution holding your crypto for you, unless you choose to trust an exchange (which comes with its own risks). The entire crypto model is built on the premise of self-custody; that you and you alone control access to your holdings through your private keys or seed phrase.

But if you are the only one who knows how to access your assets, you are also the single point of failure.

Many holders grossly underestimate just how fragile that position is. One forgotten password, one misplaced device is all it takes for those assets to be lost forever.

There are three main types of crypto custody arrangements.

Exchange wallets (custodial)

These are the easiest to use, but also the least secure. You can hold your crypto on a platform like Binance, Coinbase or Kraken, and the company will hold your private keys. That makes recovery as easy as submitting a reset password request. However:

• Your funds are exposed to platform risk (hacks, bankruptcies or regulatory seizure. Think this doesn't happen? Google FTX or Mt Gox.)
• Your heirs will have limited legal recourse unless you have planned ahead
• You fundamentally don't truly own the asset - you own a claim to it

Hot wallets (software, non-custodial)

Tools like MetaMask, Exodus or Trust Wallet do give you control over your keys, but they are still connected to the internet - making them more vulnerable to malware, phishing or device compromise. 

Cold wallets (hardware/offline)

Devices like Ledger or Trezor keep your keys offline and physically secured. These offer the strongest protection from theft, but also the highest risk of irretrievability if the wallet is lost or the recovery phrase is inaccessible.

What good custody looks like

Good custody isn't just about keeping your crypto safe today - it's about making sure you can still access it under duress, someone else can access it if necessary, without compromising security, and more importantly - your instructions are clear, legal and up to date.

Lots of people think their custody is bulletproof, but most of them are wrong. If you fall into this camp, ask yourself the following questions:

Can I still get to my holdings if my phone dies? What if my hardware wallet malfunctions? What if I forget a password or lose my 2FA device? What if the offline backups of my recovery phrase were lost in a fire? What if someone gold hold of my recovery phrase? What emergency access methods do I have if something breaks? 

If your answer to any one of these is "I'm unsure", you are vulnerable.

If you have a £2,000 portfolio, you don't need military grade solutions. But if you have a six-figure holding in Bitcoin, ETH or anything else, you need to treat this like a vault. 

Put it this way - if you deposited £1m in cash in a bank, what protections would you expect them to have to keep your money safe? It wouldn't just be a glorified USB stick with a piece of paper tucked in a drawer. This is why we fundamentally recommend the following for anyone with a crypto portfolio of any significant value:

Use a multisignature wallet like Casa, Unchained Capital or Electrum to create a 2-of-3 wallet. This requires any 2 of 3 keys to move funds.

1. Key 1 is your personal hardware walled (Ledger, Trezor, etc) stored at home in a safe
2. Key 2 is a separate hardware wallet stored in a separate secure location (e.g. trusted solicitor's vault or family member's safe)
3. Held by a trusted third part (Casa/Unchained, or encrypted and stored in a sealed document accessible through legal instructions)

This will prevent a single point of failure, but also allows for contingency if one key is lost.

For each hardware wallet involved, use Shamir's Secret Sharing (SLIP-0039) or manually split the recovery phrase into three parts. Etch each part onto a fireproof, waterproof metal plate and store each plate in three geographically separate, trusted locations - e.g. one in a bank safety deposit box, another in your solicitor's document vault (but a different location to where you have Key 2) and the third ideally in another country. 

This will give you maximum survivability in the event of any fire, theft or physical compromise. 

Avoid writing all of this down as such - or if you do, the instructions need to be kept locked somewhere separate where only authorised personnel can access it (like your immediate family members). 

This level of planning is not overkill - it is the bare minimum you would expect of a bank or third party if they were guarding a six figure portfolio for you. In this case, you are your own bank. A bank would not leave this to chance, and neither should you.

Inheritance planning - passing it on without losing it

If you have substantial holdings in crypto, and you want to pass them on, I would thoroughly and strongly recommend you do the following. Whatever method of custody you use you can adapt to this set of instructions, but we'll assume you're using a cold wallet (because if you have $1m in Bitcoin and you keep it on an exchange, you are asking for trouble).

We're also assuming you're not using multisig wallets, but this is an essential option for larger holdings - effectively where you need more than one wallet to retrieve the assets and these can be split between family members, solicitors, etc.

Produce an "in case of death" or "in case of mental incapacity" document for your loved ones

This document should include something like the following:

"You may come across a small electronic device that looks like a USB stick or a digital key. It may have a screen. This device is linked to long term financial assets, but it cannot be used to retrieve them on its own. It simply holds the keys that unlock the funds. Without the correct recovery information, you cannot access the assets.

DO NOT plug the device into a computer straight away. If you enter the wrong PIN too many times, the device may wipe itself.

DO NOT throw it away or give it to anyone else. This small item will allow you to unlock significant financial assets.

Carefully explain how to find your seed phrase

We strongly advise against simply writing your recovery phrase on paper and storing it in a drawer or box at home. If your home is ever burgled, damaged, or destroyed, whether by fire, flood, or theft, you could lose access to all cryptocurrency secured by that wallet permanently.

Instead, we recommend engraving your recovery phrase onto fireproof metal plates, and dividing it into at least three parts. Each part should be stored in a separate, secure location, such as a safety deposit box, your solicitor’s office, or another trusted long-term storage facility.

Your document should include retrieval instructions, but these must be deliberately vague to avoid enabling theft if the wrong person gains access. For example:

“Part 1 is stored at the bank I’ve used since I was 14, located on the High Street.”

NOT 

“Part 1 is stored at Barclays Bank, 123 High Street, Faketown. The code to the box is 182727.”

By leaving general, recognisable clues rather than specific access details, you protect against the risk of your instructions falling into the wrong hands.

Fundamentally you are going to have to have a conversation with whoever you want to retrieve these assets and make sure they understand these retrieval instructions before you're dead or incapacitated - because otherwise, your loved ones may not be able to retrieve them.

You should also be sure that you have formally appointed an executor to your estate, that you have an up-to-date will and your family is aware of your assets and how to retrieve them if you are not around. Walk them through the process - test it. Do it while you're around to guide them, because what seems obvious to you may be confusing to them.

Remember - the best plans are not just written, they are understood.

UK tax considerations

In the UK you are liable for capital gains tax (CGT) if you sell crypto for fiat (e.g. GBP/USD), swap one crypto for another, gift crypto (except to a spouse) or spend crypto (e.g. if you buy something with Bitcoin). 

HMRC requires you to calculate gain per transaction using the Section 104 pooling method and keep records of date acquired and disposed, amount received in GBP and a cost basis (original value + fees). 

For the 2024/2025 tax year the CGT allowance is £3,000 - anything above that is taxable at 10% or 20% depending on your income bracket.

Inheritance tax (IHT) applies when crypto is part of your estate, and is subject to a 40% tax rate above £325,000 (or £500,000 if the residence nil-rate band applies). Your executor must declare crypto holdings to HMRC, and valuation must reflect the market value on the data of death. 

A very important point to make here.

If your executor declares crypto holdings to HMRC, they will tax it accordingly. This is irrespective of whether your family can access they crypto or not. Let's say your family member accidentally disposes of your hardware wallet or cannot find the recovery phrase. That crypto is gone forever - but HMRC do not care. They will accept a payment in inheritance tax. If you have £1m in crypto holdings, this will be £270,000.

This is because HMRC treats crypto as property. It's part of your estate, so it will be taxed.

You cannot change HMRC's rules on this, ridiculous as they may be. But you CAN change whether your family ends up bankrupt trying to pay tax on assets they can't access.

If you take only one message away from this article, it should be this. Proper planning protects the people you leave behind. A lost wallet and an undeclared recovery plan can turn a £1m legacy into a financial catastrophe for your family.

Scams, fraud, theft and data loss

Sadly, you do not need to be careless to lose your crypto. In fact many of the people who lose the most are the ones that thought they had everything under control. 

If you are holding significant value in crypto, you are a target whether you know it or not. Your risk isn't just losing your wallets - it's being manipulated, misled or exploited by people who are one click or one bad decision away from stealing everything.

Scams and social engineering are the number one cause of crypto loss worldwide, and they are getting more convincing. We've seen countless examples of:

• Fake wallet apps or browser extensions
• Phishing emails pretending to be from Coinbase, Ledger, Trezor, etc
• Urgent tech support messages pressuring you to enter your recovery phrase
• Telegram and discord impersonators posing as developers or security staff
• Giveaway scams on Twitter or YouTube claiming to double your BTC
• Pump and dump ponzi schemes (remember BitConnect)?

Of course, there's also then the risk of malware and keylogging attacks (and you likely won't know you were compromised until too late), screen monitoring tools or spyware embedded in downloads, or even clipboard hijackers that replace copied wallet addresses with an attacker's address. 

But more to the point - if someone finds your wallet and recovery phrase in the same place, they don't need to hack anything. They own your crypto. Likewise, if someone suspects you hold large amounts of Bitcoin, you become a physical target and if you have enough money, even if you think your house is secure, or nobody could follow you around physically, or surveil you - you are naive.

Additionally many losses are not malicious at all - nobody expects a fire, flood or hardware failure. 

Most crypto loss isn’t the result of carelessness. It’s the result of overconfidence, isolation, and lack of a tested plan. If you’ve never practiced recovery, or if no one else knows how, it doesn’t matter how secure your wallet is. You’re one accident away from irreversible loss.

You cannot outsource responsibility in crypto. But you can plan for failure—and survive it.

Your UK crypto preservation checklist

Use this checklist to assess whether your crypto is truly secure, accessible, and protected against disaster, for both you and the people you leave behind.

Access and security

• Assets stored in secure cold storage (hardware wallet or multisig)
• Recovery phrase split and stored on fireproof metal, in multiple secure locations
• No recovery phrases stored digitally, online, or in cloud services
• Passwords and 2FA details stored in a secure, encrypted password manager
• No single point of failure in access (i.e. no “only I can get to it” setups) 

Inheritance and legal planning

• Will explicitly mentions digital assets
• Executor is aware of crypto holdings and briefed on responsibilities
• “In case of death or incapacity” document written, tested, and securely stored
• Trusted contact knows how to begin the retrieval process without compromising security Tax & Documentation
• Records kept of all transactions, valuations, and cost basis for CGT
• Crypto holdings included in estate valuation plans
• Guidance left for executor to understand how to declare crypto to HMRC

If you can’t tick most of these boxes, your crypto wealth may be vulnerable - not just to hackers or accidents, but to tax liability, probate delay, or permanent loss.

Plan like it matters. Because it does.

Final thoughts - you don't need to be rich to plan like you are

Preserving crypto wealth isn’t about paranoia, it’s about responsibility. Whether you hold £10,000 or £1 million, the moment you take custody of your assets, you become the bank. That means you’re also the compliance officer, the security team, and the contingency planner.

Crypto offers freedom, but it comes with consequences. Without proper planning, your wealth can vanish through loss, theft, or a tax bill your family can’t afford. Most of these risks aren’t technical—they’re human.

You don’t need to be wealthy to prepare like someone who values what they’ve built.

You just need to act while you still can.