Crypto Tax Guidance For Individuals Issued By UK Tax Agency

News, Regulation | December 20, 2018 By:

HM Revenue & Customs (HMRC), the UK’s tax collection agency, has published tax guidance for individuals who hold cryptocurrencies.

Titled Cryptoassets for individuals, the paper explains what taxes individuals may need to pay, and what records they need to keep based on existing laws.

“HMRC does not consider cryptoassets to be currency or money,” the paper said. “This reflects the position previously set out by the Cryptoasset Taskforce report (CATF). The CATF have identified three types of cryptoassets. The CATF have identified three types of cryptoassets: exchange tokens, utility tokens and security tokens. However, the tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token.”

The tax agency clarified that the guidance considers the taxation of exchange tokens, such as bitcoin, and does not specifically consider utility or security tokens.

“Exchange tokens are intended to be used as a method of payment and encompasses cryptocurrencies like bitcoin,” the agency said. “They utilize Distributed Ledger Technology (DLT) and typically there is no person, group or asset underpinning these, instead the value exists based on its use as a means of exchange or investment. Unlike utility or security tokens, they do not provide any rights or access to goods or services.”

According to the guidance, individuals who hold cryptocurrencies as a personal investment will be liable to pay Capital Gains Tax when they sell their coins. Individuals who receive cryptocurrencies from mining, transaction confirmation, airdrops or from their employers as a form of non-cash payment will be liable to pay Income Tax and National Insurance contributions. For individuals that are operating a cryto exchange business, Income Tax would take priority over the Capital Gains Tax rules.

“An individual who is trading may be able to reduce their Income Tax liability by offsetting any losses from their trade against future profits or other income,” the agency said. “If profits from activities are taxable as miscellaneous income, losses may be able to be carried forward to later years.”

For capital gains tax losses, if an individual disposes of cryptoassets for less than their allowable costs, they will have a loss. Certain ‘allowable losses’ can be used to reduce the overall gain, but the losses must be reported to HMRC first.

Individuals who are giving away cryptoassets to another person may need to calculate their gain or loss to find out whether they need to pay Capital Gains Tax.

“If cryptoassets are given away to another person who is not a spouse or civil partner, the individual must work out the pound sterling value of what has been given away,” the agency said. “For Capital Gains Tax purposes the individual is treated as having received that amount of pound sterling even if they did not actually receive anything.”