New Bill seeks to clarify legal status of digital assets in the UK

By Sean Hill

A significant legal update has been introduced in Parliament, which will bring greater clarity and protection for owners of Bitcoin and other digital assets. The Property (Digital Assets etc) Bill, unveiled on 11 September 2024, seeks to formally recognise digital holdings, including cryptocurrencies, non-fungible tokens (NFTs), and carbon credits, as personal property under English and Welsh law.

This legal recognition marks a significant shift in the treatment of digital assets, offering owners increased protection against fraud, theft, and scams. This legislation comes at a crucial time when existing legal frameworks are often ill-equipped to handle the unique characteristics of cryptoassets. Currently, disputes involving cryptoassets or NFTs face legal ambiguity, leaving many owners vulnerable to potential exploitation or theft with little recourse. By clearly defining these assets as personal property, the Bill ensures that digital asset owners will now have stronger legal grounds in disputes and claims for restitution if their assets are stolen or unlawfully transferred.

A major change introduced by the Bill is the addition of a third category of property under English and Welsh law. Currently, there are two categories: "things in possession" (e.g. gold, money, cars) and "things in action" (e.g. debts, shares). This Bill introduces a third category, specifically for certain digital assets, to ensure they attract personal property rights. This evolution in property law will be instrumental in shaping how digital assets are treated in various legal contexts.

The Bill will also provide clearer guidance in a wide range of legal disputes where digital holdings form part of the assets in question, such as divorce settlements, inheritance matters, and potentially even disputes involving in-game digital assets in the gaming sector. As many online games now have valuable in-game assets, this Bill could redefine their legal treatment, bringing them under this new category of property.

Furthermore, the accountancy industry must take note of these developments. As our relationship with digital assets continues to evolve, it is critical that accountants expand their training and development programmes to better understand the unique nature of digital assets. This expertise will become increasingly important for advising clients in a world where crypto and digital holdings are becoming more mainstream.

Justice Minister Heidi Alexander emphasised the importance of this legislative change in ensuring that English and Welsh law remains at the forefront of technological advancements. By formally recognising digital assets as personal property, the UK strengthens its position as a global leader in both the crypto and legal sectors. This is particularly significant at a time when digital assets are becoming increasingly mainstream, and many countries are grappling with how best to regulate them.

In addition to improving protections for individuals, this development is expected to enhance the UK’s ability to attract business and investment, particularly within its legal services industry, which contributes £34 billion annually to the economy. By offering legal certainty around digital assets, the UK will likely become an even more attractive destination for global crypto and tech companies looking for a secure and clear legal environment. Additionally, with the Bill’s legal update, there is hope that the next step would be a matching update in tax legislation, further aligning the legal and financial frameworks for digital assets.

Furthermore, this update will bolster the country’s influence in the global legal landscape, where English law governs £250 billion of mergers and acquisitions and 40% of corporate arbitrations. The new Bill will ensure that the legal framework keeps pace with rapidly evolving technologies, offering much-needed legal clarity and protection for digital asset owners and businesses alike.

Author bio

Sean Hill is a Senior Manager in the Personal Tax team at advisory and accountancy firm Menzies. His specific areas of focus are the taxation of Cryptoassets and tax planning for individuals with large property portfolios.