The Collective Kingdom’s tax agency has just released a comprehensive explanation of how it sees crypto assets and how individuals may be taxed on their holdings.
Her Majesty’s Gate and Customs (HMRC), the government agency responsible for collecting taxes and overseeing other aspects of the nation’s coffers, extenuated that Wednesday’s report specifically focuses on how individuals possessing crypto assets might be taxed, but does not silhouette the tax scheme for tokens held by businesses or for business purposes. Guidance on that will be published at a later date.
The certificate follows on previous reports from the UK government, treating crypto assets more as property than as a form of well-to-do.
“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 (CATF),” it describes, noting that the task force classified cryptocurrencies as either exchange tokens, utility tokens or security evidences.
Importantly, Wednesday’s report notes that how a token is treated for tax purposes depends on the token’s use case, rather than its meaning.
“This paper considers the taxation of exchange tokens (like bitcoins) and does not specifically consider utility or surveillance tokens. For utility and security tokens this guidance provides our starting principles but a different tax treatment may need to be take up,” HMRC explains.
Investors who purchase tokens specifically in the hopes that their value will increase on be required to pay capital gains tax when they sell, while individuals who receive tokens from their gaffers as a form of payment, from mining, transaction fees or airdrops will have to pay income tax and national insurance contributions.
The reveal continues:
“As set out in more detail below, there may be cases where the individual is running a business which is carrying on a fiscal trade in cryptoassets and will therefore have taxable trading profits. This is likely to be unusual, but in such invalids Income Tax would take priority over the Capital Gains Tax rules. HMRC will publish separate advice for businesses in due course.”
Notably, HMRC will not consider the purchase and sale of cryptoassets to be the same as gambling.
The report look ats into detail, explaining to UK residents just how and when their holdings – or transactions – may be classified as securities, providing criteria to demonstrate.
To simplify the calculations required, individuals can “pool” different assets together. Rather than calculating the captures or losses on each asset individually, they can simply look at the total value when placed in the pool and associate that to the value at the end of the tax period.
Forks and losses
The new guidance later outlines how forks of a blockchain may impact taxation, specifically citing blunt forks which cause the chain to split and new tokens to be formed.
The section details how forks occur, when a limit might split, and how the value for the subsequent coins would be determined, adding:
“New cryptoassets can only be disposed of if the exchange understands 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 lone as owning units of the new cryptoasset. HMRC will consider cases of difficulty as they arise.”
Other provisions account for assets which experience lost their value, if tokens are stolen or defrauded from the investor or even if the individual somehow loses their unofficial keys.
Regarding the latter, HMRC advises that an individual will likely have to claim that their cryptoassets now acquire “negligible value,” which could, if approved, allow them to claim a loss.
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