fbpx

Search the ETC Tax Website

Request a callback

Callback Request

Please provide as much detail as possible in regards to the reason for your enquiry so our tax advisers can prepare and tailor their response to reflect your needs. We will endeavour to call you back to discuss your enquiry and you will not be charged for this time.

  • This field is for validation purposes and should be left unchanged.
  • Sign-up to our newsletter

    Newsletter Main Form

  • This field is for validation purposes and should be left unchanged.
  • Tax on Cryptocurrency

    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.

    Experience

    Having a tax specialist who is experienced with the issues relating to cryptocurrency can offer you peace of mind. We have been advising clients on their cryptocurrency tax affairs since 2017. Indeed, we were one of the first (if not the first) tax advisory firms to proactively seek to properly understand the crypto marketplace, and the tax treatment of crypto transactions. Since then, we have amassed significant experience in this area, working with clients with crypto portfolios of a few hundreds of pounds to hundreds of thousands of pounds.

    Expertise

    Since we advised our first client in 2017, we have continued to lead the way in this rapidly evolving area, ensuring we keep up to date with the latest developments, trends and even terminology! A number of our team are themselves active investors in cryptocurrency, and, as such we have first-hand experience of blockchain. We are even happy to take payment for our services in cryptocurrency.

    Helping you to focus on what’s important

    Our team can help you ensure that your cryptoassets are structured properly. We can assist in calculating your taxable gains or losses on your cryptocurrency disposals, and deal with your HMRC filing obligations thus ensuring you are fully compliant. We can also assist those who are in dispute with HMRC or who are non-UK domiciled who may have specific tax needs relating to this area.

    How are
    Cryptoassets
    taxed?

    Cryptoassets are not considered to be currency or money by key financial institutions. Within a tax context, cryptoassets are synonymous with other assets such as shares and will be taxed accordingly.

    Tax follows the underlying activity in which cryptocurrency is being acquired or sold. As such, crypto investors and traders must consider the wide degree of transactions ranging from basic purchase and sell orders to hard forks, airdrops, staking and the like.

    The position is made more complicated as the industry develops with emerging unique and complex cryptocurrency such as gaming and gambling platforms and the evolution of non-fungible tokens and hybrid tokens used for specific purposes.

    If you are not tax resident in the UK or do not have a domicile in the UK then you can benefit from favourable tax rules.

    Income Tax

    Income tax is generally applied to individuals who are buying and selling, or receiving cryptocurrency, as part of a trade.

    For example, the most obvious would be the ‘day-trader’ who is actively buying and selling cryptoassets with the view to realising a short-term profit. Even in these circumstances, it is generally difficult to fall within the description of a ‘trader’ and HMRC generally accept that individuals will be subject to the more favourable rates of capital gains tax (see below).

    In order to fall within the description of trading, 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 the threshold of trading is met, the net profits will be subject to income tax at 20%, 40% and 45% and national insurance at 12% and 2%.

    In most circumstances, a person who trades on their own account is unlikely to meet the description of a ‘trader’ for income tax purposes and will more than likely fall within the capital gains tax regime.

     

    Capital Gains Tax

    In most cases, an individual buying, holding and selling cryptocurrency on their own account will be deemed to carry on an investment activity and subject to capital gains tax.

    The disposal of cryptoassets will result in a taxable event, with the value of any disposal proceeds matched against purchases in a specific order:

    1. Cryptoassets acquired on the same day;
    2. Cryptoassets acquired in the following 30-days
    3. The average cost of any unmatched cryptoassets (known as the ‘pool’)

    The amount of the capital gain is the difference between the value of the disposal proceeds and the value of the acquisition cost per the matching rules.

    you pay capital gains tax on your total gains above an annual tax-free allowance which is currently £12,300 for individuals. Any gains realised above this allowance will be taxed at 10% up to the basic rate tax band (if available) and 20% on gains at the higher and additional tax rates.

     

    What about Airdrops, Forks and Staking?

    Airdrops – Where an individual has participated in a crypto airdrop, they are deemed to have acquired the asset at a ‘nil’ cost which will then be matched against a disposal or added into the pool. If the person is ‘trading’ and subject to income tax, the value of the airdrop will be subject to income tax.

    Hardforks – Where a fork results in a new cryptoasset being created, the individual must allocate a share of the cost of the original cryptocurrency to the newly acquired or created cryptoasset. This does not create a tax liability but does ‘split’ the cost of the old asset, so that a future disposal may result in a greater liability. If the person is trading, the value of the received cryptoasset will be assessable to income tax.

    Staking – Staking is akin to investment income and will be deemed to be subject to income tax regardless of whether a person is trading or not.

     

    Unique and Complex Cases

    Cryptoassets and the underlying technology is constantly evolving and the existing tax rules are not apt to deal with this.

    For arrangements which go beyond the basic scope of acquiring and selling cryptoassets via a trade, airdrop, fork or staking, care needs to be taken to ensure the correct tax rules are being applied.

    The tax treatment will often be ambiguous and reliance on a tax specialist who is familiar with the industry, technology and issues is paramount. We are regularly reviewing unique and complex cases with more recent involvement in reviewing the position of Non-Fungible Tokens (“NFTs”) and NFT based gaming platforms whereby the transactions may be excluded from tax all together.

     

    Residency and Domicile

    The location or ‘situs’ of cryptocurrency is particularly important for non-resident and non-domiciled persons. HMRC take the view that cryptoassets follow the residency of the individual. However, this is a simplistic approach to a complex issue and there is no authority in favour of HMRCs approach.

    On this basis, if a person is not tax resident in the UK then there will not generally be any tax exposure in the UK. For persons who have left the UK, there are strict anti-avoidance rules which can create a tax liability on if tax residency is resumed in the the UK within five years.

    Where a person is tax resident in the UK, but is not domiciled in the UK, they may elect for the remittance basis. This allows a person to escape UK taxation on foreign income and gains until those foreign income and capital gains are remitted to the UK, and indefinitely otherwise.

    Based on HMRCs view of the location of cryptoassets, a non-domiciled person would not be eligible for the remittance basis on cryptocurrency income and gains. However, the location of the assets could also be:

    • The location of the exchange entity holding cryptoassets
    • The location of the services which host the technology

    However, this would be contrary to HMRCs view and any such position taken should be disclosed accordingly with the potential for HMRC to query and / or challenge any remittance basis claim.

    With that said, it would not be an unreasonable approach to take subject to the appropriate disclosure and filings.

    From my first point of contact with Chris, ETC have been professional, thorough and courteous. My main dealings have been with Sophie and Rohan and they have been excellent! Overall a first class service has been provided by all staff, which has helped me greatly in overcoming my nemesis, the dreaded Tax return!

    Phil Harding

    Help us to help identify what advice you need on your cryptoassets

    To assist our team in reviewing your position and to deal with your enquiry more efficiently, please complete our brief questionnaire, after which you will be asked to leave your contact details if applicable. This will enable us to get a better understanding of your current position, and to advise you correctly. Please ensure all fields are completed in as much detail as possible, as we may be unable to deal with your enquiry if we do not have all the information we need.
    Many thanks.

    Question 1

    Did you make a profit on the sale of cryptoassets exceeding the annual exemption for Capital Gains Tax during any tax year (£12,300 for 2020/21 tax year)?

    Question 2

    Did your gross proceeds from the sale of cryptoassets exceed more than 4 times the annual exemption in a single tax year (£49,200 for 2020/21 tax year)?

    Question 3

    Have you participated in any wider crypto activities such as ICO’s, hardforks, airdrops, peer to peer lending, margin trading, staking, gaming or mining? If so, please provide a brief description of the relevant crypto assets involved and the value received from these activities.

    Question 4

    When did you begin investing in Cryptocurrency and how much have you invested to date?

    Question 5

    Please provide an estimate of the current value of your portfolio to date.

    Question 6

    Have you previously declared all of your capital gains or profits to HMRC?

    Question 7

    Have you been regularly trading cryptocurrency – if so, please provide an indication of the number of trades on average per month?

    Question 8

    Are you able to obtain full records of your historic crypto transactions? If not, please provide an indication of the time periods for which records may be missing and an estimation of the number of transactions.