Lovin’ this article, but need more advice on your tax affairs?
Get in touch today.
Rohan Manro explains how Family Investment Companies can be used as tax efficient vehicles for crypto investments.
It is without a doubt that blockchain technology and crypto assets are here to stay. The most recent development in the crypto sphere involved the listing of Coinbase on Nasdaq topping a market capitalisation of $105bn, which settled after a short frenzy at $60bn.
As the space continues to develop and grow, more and more individuals are seizing their opportunities and finding themselves accruing life-changing amounts of wealth. With awareness of tax compliance issues generally being good, investors and developers are shifting their focus towards future planning.
In short, a Family Investment Company (“FIC”) is a corporate vehicle designed to preserve, maintain and grow the family wealth whilst meeting the income requirements of the various parties involved. It is typically considered a structure in which the principles retain control whilst earmarking value for successive generations tax efficiently.
It acts as a useful ‘hub’ from which to pool, manage and grow the family wealth and protect assets from the grips of personal and external creditors.
How can a FIC benefit a crypto investor?
In order to understand how a FIC can benefit a crypto investor, we must understand some of the common and underlying issues faced by them. Based on our recent experience of dealing with crypto enquiries, in summary, the most common issues faced by crypto investors include:
Transferring existing crypto assets to a company
When we speak of a ‘transfer’, a company is not usually able to have a wallet or exchange account in its own name. As such, the individual should ensure the necessary arrangements are made to evidence the ownership of the assets.
In many circumstances, the investor will already hold a significant portfolio on his own account. As such, there will be a number of tax implications which may act as a barrier to transferring crypto assets into a company.
The main issue will be that a transfer of crypto assets to a company is deemed to be a sale at market value, crystallising any capital gains which may be outstanding on the portfolio. Often, this will generate a tax charge that the client is not in a position to fund without liquidating some or all of their portfolio.
Of course, the longer-term advantages of using a FIC may outweigh the short-term tax cost, in which case, it may remain a feasible option. It may also be possible to meet this tax charge without using your own funds or liquidating the portfolio, for example, by leveraging part of your portfolio.
If the tax charge is not tenable, then there may be other options available to the investor. For example, where the investment portfolio could be considered to be a serious undertaking with the view to profit, it may be possible to rely on relief specifically designed to allow business (trading and investment) to mitigate a charge when moving into a company.
ETC Tax are at the forefront of the taxation of crypto assets, regularly assisting investors and traders with the compliance and structuring issues. We have a solid grasp on the fundamental and underlying practicalities which allows us to identify and implement planning that is bespoke to each investor’s circumstances and objectives.
To date, ETC has assisted in unique and sensitive cases including large historic and offshore non-compliance affecting crypto investors, crypto-gaming and NFT tokens, unique mining arrangements where there are restrictions and conditions imposed on node operators and working with DeFi platforms.
Call or email us any time or, simply fill out the contact form below and a member of our team will be in touch.