The U.K. Government Introduces a Bill to Create a New Category of Personal Property for Digital Assets and NFTs

The U.K. government has introduced a bill to create a new category of personal property for digital assets and non-fungible tokens (NFTs), following a July Law Commission report that recommended the move.

The United Kingdom government introduced a bill on Monday that would create a new category of personal property for digital assets, such as cryptocurrencies and non-fungible tokens (NFTs).

If passed, the bill would expand the current two categories of personal property—"things in possession" and "things in action"—to include a third category for certain digital assets. This would provide them with clear legal recognition and protection.

“Previously, digital belongings were not definitively included in the scope of English and Welsh property law – leaving owners in a legal grey area if their assets were interfered with," the government said in a press release.

"The new law will therefore also give legal protection to owners and companies against fraud and scams, while helping judges deal with complex cases where digital holdings are disputed or form part of settlements, for example in divorce cases.”

Personal property rights are used by courts and individuals in several situations, such as cases of bankruptcy or insolvency, where objects of property rights are interfered with or unlawfully taken, and for the legal rules concerning inheritance and succession on death. They are also crucial for clarifying legal relationships, including custody relationships, collateral arrangements, and structures involving trusts.

The laws of England and Wales currently categorize personal property into two main types: things in possession, i.e., tangible property, and things in action, i.e., intangible property, such as debts or rights.

Digital assets, including digital currencies and NFTs, can possess both qualities or neither. This ambiguity has created confusion and hindered dispute resolution in court proceedings.

“It is essential that the law keeps pace with evolving technologies and this legislation will mean that the sector can maintain its position as a global leader in cryptoassets and bring clarity to complex property cases," Justice Minister Heidi Alexander said in the announcement.

"This will help to ensure that the U.K. remains at the forefront of the digital economy and that people's property rights are protected in the 21st Century.”

To achieve this, the new legislation includes legal recognition of digital assets such as “cryptocurrencies,” NFTs, and digital carbon credits as personal property, with the hope that it will provide enhanced legal protection for owners against fraud and scams and offer clearer guidelines for judges handling cases involving disputed digital holdings or settlements.

This legislative move doesn’t come out of the blue, with the government noting that action was being taken on digital assets in response to a U.K. Law Commission report.

A long time coming

The U.K. Law Commission is an independent body tasked with reviewing laws and recommending reform. In June 2023, it published a report that concluded that “certain types” of digital assets are things to which property rights relate.

However, after coming to this conclusion, the Commission admitted that certain digital assets don’t easily fit within the existing categories of personal property—things in possession and things in action—that have been traditionally recognized in England and Wales.

For this reason, the Commission urged the government to create a new “third category” for digital assets, which it hoped would ensure related property rights are clear and enforceable.

“We conclude that the flexibility of common law allows for the recognition of a distinct category of personal property that can better recognize, accommodate and protect the unique features of certain digital assets (including crypto-tokens and crypto assets),” the August report said.

"There are many different types of digital assets, not all of which will be capable of being things to which personal property rights can relate. In this report, we use the term in a broad sense.”

On July 30, 2024, the Commission followed up this recommendation with a “supplemental report and draft bill” advocating for legal reforms to better account for the unique features of digital assets.

Specifically, it recommended a ‘Property Bill’ that would clarify that “a thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither— (a) a thing in possession, nor (b) a thing in action.”

As of this week, it appears the new Labor government has taken up this recommendation, and the bill will begin working its way through Parliament.

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