- Has HM Revenue and Customs (“HMRC”) issued any guidance?
On 19th December 2018, HMRC released guidance on the taxation of crypto assets for individuals. It is believed to be one of the most comprehensive sets of guidance currently issued by any government. It can found at: https://www.gov.uk/government/publications/tax-on-cryptoassets
- How is an individual taxed?
Mining – subject to Income tax as miscellaneous income on discovery (not necessarily sale) ie tax rates up to 45%. Future growth is normally Capital Gains Tax (“CGT”).
Investment – subject to Capital Gains Tax, tax rates typically 20%. Losses can be used against other gains.
Trading – slightly unusual that HMRC would argue that an individual is trading and subject to Income Tax unless there were many transactions and there was a profit. An individual might argue for trading if there were losses (to offset against income and gains) , but HMRC would argue against. It follows all the usual badges of trade rules.
- What are the identification rules for CGT?
Similar to a disposal of shares ie
- Same day transactions
- 30 day rule
- The section 104 pool
- How is a company taxed?
It depends on how it is treating the crypto assets in its accounts. Following IFRS interpretations Committee guidance, it suggested IAS 2 (inventories) could apply (when held for sale in the ordinary course of business) or IAS 38 (intangible assets) could apply when held as an investment. The corporate taxation should therefore follow as trading income or capital gains with rates of currently 19%. However, any formal guidance/law has yet to be issued.
- How is an employee taxed on receipt?
If given by reason of employment it is a readily convertible asset in money’s worth. In essence subject to PAYE (income Tax and NI – employment taxes) on receipt.
- Are crypto assets subject to Value Added Tax (“VAT”)?
They are recognised as akin to a financial product and currently not within the scope of VAT.
- Are there any tax “red herrings” or incorrect stories?
The following are in circulation, but not accepted by HMRC:
- It is gambling so it is not taxable
- It is a gain on money for personal use and is not taxable under CGT.
- Exchanging one cryptocurrency for another (or a different type) does not give rise to a taxable event.
- Is HMRC on the offensive and seeking out non disclosure of income and gains?
Absolutely! HMRC has sent letters to at least three popular cryptocurrency exchanges operating in the U.K., requesting client transaction data. These advance notices, which have been mailed to eToro, Coinbase and CEX.IO, will serve as precursors to a later statutory letter which will require more definitive action.
- What is the situs of a crypto asset for resident but non UK domiciled individuals?
With UK resident but non-UK domiciled individuals being subject Inheritance Tax on UK situs assets or potentially capital gains on the remittance basis. This one is still open to interpretation or regulation.
If the crypto currency is treated as UK situs, then the downside for non UK resident and non UK domiciled individuals is that it could be subject to UK inheritance tax on death. Yes the UK does want to tax foreigners! These individuals should consider company/trust structures to own UK assets.
- Is Crypto asset use regulated on unregulated?
The UK is fully supportive of Crypto assets and has appointed a Crypto assets Taskforce to understand and develop the market. Their last report is dated October 2018 and can be found at https://www.gov.uk/government/publications/cryptoassets-taskforce
Crypto assets remain largely unregulated, but this may change from early 2020.
Other countries for example India and China do not support crypto assets and have made their use illegal.
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