How are cryptocurrencies taxed in the UK? New Tax Agency guide points it out

20 Dec, 2018
by Alberto Arnaldo
Regulation
How are cryptocurrencies taxed in the UK? New Tax Agency guide points it out

Her Majesty’s Revenue and Customs (HMRC), United Kingdom’s tax collector, published yesterday a paper outlining the views of the organism regarding the tributary obligations of individual crypto holders.

While the document leaves out taxation of cryptocurrencies held for business reasons, and also what they deem as utility or security tokens, HMRC does delve in depth into exchange tokens, a category comprising Bitcoin and its peers, with the decentralization of ledgers as a defining element.

Although HMRC states clearly that they do not consider trading with cryptos to be the same as gambling, United Kingdom’s cryptocurrency holders will have to pay capital gains tax on assets obtained through mining, transactions, airdrops, or payments from employers.

Read more: UK, EU to work together after Brexit to end crypto "anonymity"

However, with regards to earnings obtained through trading, it appears as if the policy document leaves some grey areas that will require further interpretation:

Only in exceptional circumstances would HMRC expect individuals to buy and sell cryptoassets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business”.

There is currently no level of frequency, organization or sophistication established for differentiating trading from portfolio management in order to determine whether if income or capital gains tax should be applied.

Read more: UK regulator launches dozens of investigations into crypto

Further mentions in the text refer to legislation in place concerning the trading of “shares, securities or other financial products”, which does neither sets a threshold for determining the type of tax applicable.

Judging from the following sentence, it appears as if the tributary branch does not count on many capital tax filings from individual cryptocurrency holders:

HMRC would expect that buying and selling of cryptoassets by an individual will normally amount to investment activity (rather than a trade of dealing in cryptoassets)”.

Other parts of the document refer to varied aspects of how HMRC sees crypto, such as pooling of assets in order to report the gains or losses of several cryptos together, and also to forks or on how tokens will be considered property for the purposes of inheritance tax.

On the negative side, provisions warn investors that HMRC does not consider theft to be a disposal, and as such, victims of fraud cannot claim losses for capital gains tax.

Read more: IRS partners with five other countries to tackle crypto fraudstersMosque in UK becomes first to accept crypto donationsBritish Pound now available for UK Coinbase users

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