The rapid growth in cryptocurrency and distributed ledger technology has seen an influx of new cryptocurrency business, traders and investors which has attracted significant attention from HMRC and other tax authorities worldwide. As a result, HMRC are actively enquiring into crypto businesses, traders and investors to ensure that all individuals and businesses involved in cryptocurrency pay their fair share. Ensuring cryptocurrency businesses, traders and investors are structured properly is paramount to keeping tax efficient and remaining compliant with HMRC.
Having a tax specialist who is experienced with the issues relating to cryptocurrency business, traders and investors can offer you peace of mind. We ensure that your affairs are structured properly, are compliant with HMRC and can help resolve any HMRC investigations, allowing you to focus on your business or investments.
Our team can help you calculate your taxable gains or losses on your cryptoasset disposals and assist with your filing obligations with HMRC.
The situs of cryptoassets is particularly relevant to non-UK domiciled individuals who are able to use the remittance basis of taxation. It is important that you consider the latest guidance from HMRC before making any trades. We can confirm for you the tax impact that any purchases or sales may have and advise you on how to best manage that tax exposure.
Cryptoassets are not considered to be currency or money by key financial institutions and therefore, within a tax context, cryptoassets are synonymous with other assets such as shares and will be taxed as such.
However, whether these are considered to be treated as capital (and subject to the lower rates of tax) or income, will depend on whether you are considered to be trading in cryptoassets or not.
Income Tax
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.
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