Buying a Home with Cryptocurrency: What You Need to Know Before You Instruct a Conveyancer

 

ANTI-MONEY LAUNDERING  |  GUIDANCE FOR BUYERS

More buyers are funding a deposit, and in some cases an entire purchase, from money they have built up in cryptocurrency. If that is you, expect your conveyancer to ask a great many questions before your money can be used. This guide explains, in plain terms, why those questions are asked and how to prepare so that your purchase is not delayed.

Cryptocurrency has moved from the fringes of finance into the mainstream. It is no longer unusual for someone buying a home to have part of their deposit sitting in a digital wallet rather than a savings account. That is perfectly legitimate. The difficulty is not the cryptocurrency itself, but the checks your conveyancer is legally required to carry out before that money can be put towards your purchase.

If you understand what your conveyancer needs and why, you can gather the right information in advance, avoid frustrating delays, and complete your purchase with far less stress. Here is what you need to know.

What is cryptocurrency?

Cryptocurrency is a form of digital money. Unlike the pounds in your bank account, it does not exist as notes and coins, and it is not issued or controlled by a central bank or a government. Bitcoin and Ethereum are the best-known examples, but there are thousands of others.

You hold cryptocurrency in a digital account known as a wallet, and you buy and sell it through online platforms called exchanges. The value can move sharply from one day to the next, so the amount you originally paid and the amount you eventually withdraw in pounds may be very different.

For almost all house purchases, cryptocurrency cannot be used to pay directly. It must be converted into pounds first, then moved into a bank account in your own name, before it ever reaches your conveyancer. Most conveyancing firms will not accept cryptocurrency as payment under any circumstances.

Why does cryptocurrency create a problem for your conveyancer?

The short answer is that your conveyancer is required by law to understand where your money has come from. This is part of a set of rules designed to prevent money laundering, which is the process criminals use to make the proceeds of crime appear legitimate. Property is a favourite target for this, because large sums change hands, so conveyancers sit on the front line of the defences against it.

Cryptocurrency presents difficulties for the following reasons:

It can be harder to trace. A normal bank transfer leaves a clear record showing who paid whom. Cryptocurrency transactions are recorded in a different way, and the people behind them are not always easy to identify.

It is sometimes associated with higher risk. Because it can be moved quickly across borders with limited oversight, it has been used by criminals to disguise the origin of illicit funds. That does not mean your cryptocurrency is in any way suspect, but it does mean your conveyancer has to look more closely than usual.

The trail can be incomplete. Some exchanges keep thorough records and apply strong identity checks on their customers. Others do not. If the platform you used has weak controls, your conveyancer will have less to rely on and may ask for more from you instead.

The value changes. Because the price rises and falls, your conveyancer needs to understand not only where the money ended up, but what you originally put in, when, and how the two connect.

None of this means a conveyancer will refuse to act simply because cryptocurrency is involved. It means they must do more work to satisfy themselves, and the law, that the money has a legitimate origin.

What your conveyancer is required to do

Conveyancers are governed by the money laundering regulations and by wider criminal law. Two phrases will come up, and it helps to understand them.

Source of funds. This means the specific money being used for this purchase. Where did the deposit come from, and how did it reach your account?

Source of wealth. This is the bigger picture. How did you come to have these funds in the first place? In the context of cryptocurrency, this usually means how you funded the original purchase of the cryptocurrency, for example from salary, savings, an inheritance, or the sale of another asset.

Your conveyancer must build a clear and documented chain that traces the money from a legitimate starting point all the way through to the funds that will be used to buy your home. With cryptocurrency, that chain has an extra link in it, namely the period during which the money sat in digital form. Your conveyancer needs to bridge that gap with evidence.

Where a transaction carries higher risk, the regulations require enhanced checks. As cryptocurrency is treated as a higher risk factor in the guidance conveyancers follow, you should expect those enhanced checks to apply. This is normal and expected, and it is not a judgement on you.

The questions you should expect

Every firm is slightly different, but if part of your funds comes from cryptocurrency, you are likely to be asked some or all the following:

• Which exchange or platform did you use to buy and sell the cryptocurrency?
• Is that exchange registered with the Financial Conduct Authority, or otherwise properly regulated?
• When did you first buy the cryptocurrency, and how long did you hold it?
• What did you originally pay for it, and where did that original money come from?
• Can you provide a full transaction history from the exchange, showing purchases, sales, and withdrawals?
• Can you show the cryptocurrency being converted into pounds and transferred into your own bank account?
• Are the bank account and the exchange account both in your own name?

The more of this you can answer clearly, and the more of it you can support with documents, the smoother the process will be.

How to prepare

A little planning makes an enormous difference. The single most common cause of delay is a buyer trying to pull money out of cryptocurrency at the last minute, with no records to hand. Avoid that by taking these steps.

ACTIONS TO TAKE Tell your conveyancer early. Mention at the very start that some of your funds come from cryptocurrency. This allows them to tell you exactly what they need, rather than discovering it halfway through. Convert to pounds in good time. Move your money out of cryptocurrency and into a bank account in your own name well before you expect to need it, not in the final days before completion. Use a reputable, regulated exchange. Where you have a choice, use a platform registered with the Financial Conduct Authority. Funds that have passed through a well-regulated exchange are easier to evidence. Keep every record from the beginning. Download and save your full transaction history, account statements, and screenshots showing dates and values. Keep evidence of the original money you used to buy the cryptocurrency, such as payslips or savings statements. Keep everything in your own name. Make sure the exchange account and the receiving bank account both belong to you. Money arriving from a third party creates extra questions and extra delay. Let the funds settle. Where you can, allow the converted money to sit in your bank account for a period before it is needed, with a clear record of how it arrived there.

Common pitfalls to avoid

PROCEED WITH CARE Leaving it to the last minute. Converting cryptocurrency and gathering records takes time. Doing it under deadline pressure is the surest route to a delayed completion. Assuming a screenshot is enough. A single image of a wallet balance rarely satisfies the checks. Your conveyancer needs a connected trail, not an isolated snapshot. Mixing funds together. Combining cryptocurrency proceeds with other money in a single account, with no clear paper trail, makes it much harder to show where each part came from. Using an account that is not yours. Receiving the money through a friend, relative, or business account complicates matters considerably and may stop the transaction in its tracks.

Higher risk situations

HIGH RISK: EXPECT CLOSER SCRUTINY Funds from an unregulated or overseas exchange with limited records may be very difficult, and occasionally impossible, to evidence to the required standard. So called privacy coins, which are designed specifically to hide transaction details, are treated with caution and may not be acceptable as a source of funds. Cryptocurrency that cannot be traced back to a lawful origin cannot be used. If your conveyancer is unable to satisfy the legal requirements, they cannot proceed, and in certain circumstances they may be obliged to make a report to the authorities.

The bottom line

Cryptocurrency is a legitimate and increasingly common source of funds, and the right preparation removes almost all the friction around it. The checks your conveyancer carries out are not an obstacle placed in your way for its own sake. They protect the integrity of the property market, they protect you, and they keep your conveyancer on the right side of the law.

Treat the records as you would treat any other part of your deposit. Gather them early, keep them in your own name, and share them openly with your conveyancer at the outset. Do that, and a cryptocurrency funded purchase need be no more complicated than any other.

 

This guide is intended as general information only and does not constitute legal or financial advice. Requirements vary between firms and according to the circumstances of each transaction. If you are buying a home using cryptocurrency funds and would like to discuss what your conveyancer will need, please get in touch.

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