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You are hereHome / Cryptoassets: tax for individuals

12 Jun 2020

HMRC recently published a paper setting out their view of the appropriate tax treatment of cryptoassets (or cryptocurrencies as they are also known).  Here is the link but I’ve also summarised in this article the key points to note.

It’s always been HMRC’s view that the buying and selling of cryptoassets by an individual normally amounts to an investment activity and profits would be liable to capital gains tax.  HMRC will only accept an individual is trading in cryptoassets in exceptional circumstances and will consider frequency of trade, level of organisation and sophistication in concluding whether a trade is being continued.  That view has not changed, but given cryptoassets are becoming more prevalent, HMRC have published this paper in order to provide greater clarity and understanding.

Key points:

  1. HMRC does not consider cryptoassets to be currency or money hence the use of the term cryptoasset, as opposed to cryptocurrency.
  2. Cryptoassets received as employment income count as money’s worth and as such, are subject to Income Tax and NIC.
  3. A disposal of a cryptoasset includes the following:
    • A sale for money
    • An exchange for different cryptoassets i.e. Bitcoins exchanged for Ripples
    • Buying goods or services using cryptoassets
    • Outright gifts
  4. If cryptoassets which are still owned become worthless or of negligible value a loss may be crystalised upon making a negligible value claim.  The loss is crystalized by treating the individual as having sold and re-acquired the cryptoasset.
  5. If an individual loses their private key (cryptoasset code) this does not count as a disposal for CGT purposes.  If there is no prospect of recovering the private key a negligible value claim can be made.
  6. If an individual becomes a victim of theft or fraud (possible given history and the unregulated nature of most cryptoassets), this is not a disposal as the individual has a right to recover them.  A negligible value claim may be made by those who do actually receive their cryptoassets, however, if the cryptoassets are never received in the first place the individual may never claim a loss.
  7. Cryptoasset exchanges may only keep records for a short period of time therefore the onus is on the individual to keep adequate records.
  8. For capital gains tax purposes cryptoassets are pooled in the same way shares are.
  9. Many cryptoasset exchanges do not use GBP as a reporting currency so the value of any gain or loss will need to be converted to GBP using an appropriate exchange rate before reporting on the individual’s tax return.
  10. Cryptoassets count as property for IHT purposes.
  11. Miners who generate new cryptoassets are liable to Income Tax when they receive the new cryptoassets.  Unless they are trading any gain on the disposal of that cryptoasset is chargeable to capital gains tax.

Contact our specialist team

  • Vakis Kilikitas – Senior Tax Adviser
  • Tel +44 (0)20 7832 0444
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