UK Tax Agency HMRC: Details New Tax Guidelines For Crypto Investors

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For clarities’ sake, the United Kingdom tax agency released a detailed tax framework that explains how it handles cryptocurrencies alongside how investors will be taxed on their portfolios, as reported by CoinDesk.

Her Majesty’s Revenue and Customs (HMRC) is the government group who manages taxes alongside other financial related policies. It released a report on Wednesday that states how crypto investors will be taxed, but it fails to explain how businesses holding crypto will face charges. This information will come at a later time.

Bitcoin Tax

Bringing It All Together

This HMRC document is a continuation of previous reports from the UK government, who are treating these assets closer to a property than a form of currency.

The Cryptoasset Taskforce (CATF,), a UK government initiative, established by Exchequer Philip Hammond for “managing risks surrounding Cryptoassets,” previously released a statement on the HMRC. It reads, “HMRC does not consider crypto assets to be currency or money. This reflects the position previously set out by the report from the Cryptoasset Taskforce.” It also points out that the CATF classifies cryptocurrencies a little more regularly, dividing them into exchange, utility, or security assets.

Additionally, this report explains that a token’s tax reasonings are based on the token use case instead of just on a definition:

“This paper considers the taxation of exchange tokens (like bitcoins) and does not specifically consider utility or security tokens. For utility and security tokens this guidance provides our starting principles but a different tax treatment may need to be adopted.”

The page also explains that investors who buy tokens simply for their value to increase will have to pay capital gains tax upon selling. Otherwise, those who gain tokens via payment, mining, airdrops, or other methods will have to pay both income taxes and national insurance contributions.

It then goes into business details-specific taxation:

“As set out in more detail below, there may be cases where the individual is running a business which is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits. This is likely to be unusual, but in such cases Income Tax would take priority over the Capital Gains Tax rules. HMRC will publish separate information for businesses in due course.”

Securities or Otherwise

Also, it’s important to note that the HMRC does not consider crypto trading to be the same as gambling, before going into “how and when” their assets are considered securities. Essentially, investors can put their assets together to simplify the taxation process. Then, instead of doing individual calculations, they can look at the pool and generate a total from that number.

Finally, the report goes into blockchain technology and how processes such as hard forks would affect taxation. Hard forks are when one blockchain splits into another one for improvements. When a chain splits, a new token is created, which could cause some confusion regarding taxation. The document clears this up:

“New cryptoassets can only be disposed of if the exchange recognizes the new cryptoassets. If the exchange does not recognize the new cryptoasset it does not change the position for the blockchain, which will show an individual as owning units of the new cryptoasset. HMRC will consider cases of difficulty as they arise.”

Other facilities are in place for Cryptoassets that significantly lose their value or if an investors’ currencies are stolen, for example. There is even a policy for investors who lose their private keys. These users portfolios are then considered to have “negligible value,” in which they can file for a loss.

While it isn’t perfect, these policies are a good start. Other countries interested in cryptocurrencies should follow suit. That said, it’s essential for these policies to present a balanced approach as not to scare off current investors, but also to make new ones feel safe.

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