Individuals will need to “buy and sell cryptoassets with such frequency, level of organization, intention and sophistication that the activity amounts to a financial trade in itself”. If trading is determined than the net profits will be subject to income tax and national insurance.
Income tax may also arise where individuals have mined, received cryptoassets as part of their earnings or been involved in airdrops.
Income tax is chargeable at the rates of 20%, 40% and 45% and national insurance is chargeable at 12% and 2%.
Capital Gains Tax
It is therefore thought that the majority of investors in cryptoassets will be subject to capital gains tax on any disposals. This is because the cryptoassets are predominantly held as investment assets and therefore, these will be given comparable treatment to assets such as shares. Note that disposals not only include exchanging cryptoassets for money, but it also includes exchanging for another type of cryptoasset, using cryptoassets to pay for goods or services or gifting the holdings.
The value attached to the crypto assets on each taxable event is the pound sterling value attributable and you only have to pay capital gains tax on your total gains above an annual tax-free allowance which is currently £12,300 for individuals. Any gains above this allowance will be taxed at 10% up to the basic rate tax band and 20% on gains at the higher and additional tax rates.
Residency and domicile status
HMRC’s view is that the taxation of cryptoassets in the UK is dependent on where you are resident. Those who are resident in the UK will be deemed to hold the cryptoassets in the UK. As the assets are deemed to be UK situs assets, any income or gains arising from the cryptoassets will be taxable in the UK.
The same rules apply where individuals are not resident in the UK, the cryptoassets will not be considered to be UK assets and therefore will not be subject to UK taxation. Care should be taken by those who are non-resident for less than 5 years as the temporary non-resident rules may apply.
Those that are not domiciled in the UK are usually able to make a claim to file their taxes under the remittance basis, meaning that only their UK income is subject to UK taxation and any overseas income or gains are not taxable in the UK on the basis that these are not bought into the UK. As UK resident individuals will be considered to hold there cryptoassets in the UK, there will not be the option to exclude their cryptoassets from UK taxation under the remittance basis.