personal finance

How can I stop my son investing his inheritance in crypto?


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?

Headshot of Hayden Bailey, head of private client and tax, Boodle Hatfield
Hayden Bailey, head of private client and tax, Boodle Hatfield

Hayden Bailey, head of private client & tax at Boodle Hatfield, 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.

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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.

Should we put money into the life sciences sector?

My brother and I have recently taken over my father’s business and are looking to invest. My brother is overly keen on the idea of life sciences, and biotech specifically, as a good investment — but I’m not sure I know enough about it. Please could you advise me on what is driving interest in this type of investment, and if there are any specific legal considerations? 

Headshot of James Banks, partner at Bryan Cave Leighton Paisner
James Banks, partner at Bryan Cave Leighton Paisner

James Banks, partner at Bryan Cave Leighton Paisner, a law firm, says interest in the life sciences sector — and biotech specifically — has arguably never been greater. Biotechnology uses biological processes to develop products, including medicines and biofuels, and cleaner manufacturing processes, which benefit human health and the environment. As a result, the sector is an increasingly popular investment destination for governments, private equity, institutions, venture capital and family offices/private investors.  

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Following the Covid-19 pandemic, the UK government launched its Life Sciences Vision, designed to make the UK a leading global life sciences hub. This plan and the UK’s unique advantages — access to top talent through world-leading universities and research institutions, the NHS’s ability to run clinical trials at speed and scale, and a population requiring increased access to medical care and treatments — mean the sector is growing rapidly, outperforming several other sectors and asset classes. 

Big pharma companies distribute medicines and products on a global scale but develop fewer drugs themselves, meaning they invest heavily in biotech to secure their drug pipeline. This creates a competitive market. Consequently, biotech investors could secure good return-on-investment earlier in the drug development cycle (long before regulatory approvals are granted), leading to lower upfront capital investment.

In the second quarter of 2023 the FTSE All-Share pharmaceutical and biotechnology price return index closed 13 per cent higher than the FTSE All Share price return index. Forecasts suggest that life sciences will remain a robust growth area in the short to medium term.

Despite this, investing in life sciences is not risk-free and not all life sciences businesses are successful economic enterprises — far from it — many fail within their first two years.

Research and development are extremely cash and time-intensive, often costing millions of pounds and taking several years before a product or service is ready for market, or the business itself is viable for sale. Patent exclusivity (generally 20 years) may eat into much of the development phase. You would need to examine other available data and market exclusivities carefully to secure income free from competition.

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There are several legal issues and considerations incidental to R&D set-up, laboratory space, regulatory compliance, patent/licensing exclusivity and, potentially, securing debt finance to supplement your investment, on which you’ll need to obtain advice. Control of hazardous materials requires strict compliance and engagement with all competent authorities. Materials can be expensive to store and control (particularly with high energy prices). 

Investors are at a material risk of not recouping their investment. Considering the investment requirements, losses can be huge. However, biotechnology has generally delivered strong returns for over a decade.

Given the risks, any potential investor must seek advice from a specialist life sciences investment professional who may be able to suggest investable businesses or funds commensurate with the investor’s risk appetite.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to yourquestions@ft.com.

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