HMRC has written to UK crypto asset holders, pushing them to look into their own capital gains tax position, letting them know that crypto asset disposals may be caught in the tax net. ‘Disposals,’ in this case, will include crypto assets being:
- exchanged for other crypto assets or for fiat currencies
- used in exchange for goods and/or services
- gifted (except to spouses and civil partners)
There is no disposal in the case of:
- beneficial ownership being retained (e.g., moving wallets)
- tokens being donated to charity (except in the case of tainted donations or when a gain is realised)
- the token being exchanged for the same type of token (e.g., when using a cryptocurrency tumbler or mixer)
Details of capital gains tax regarding cryptos can be found on an online manual published by the UK Government.
Nondomiciled entities may benefit from tax relief in the case that the gains remain outside the UK. It must be noted that the situs of the crypto assets follows the residence of the holder, and so a nondomiciled resident will be taxed, even if the gains form part of their overseas income.
This notice to UK crypto asset holders is apart from the income tax accrued from mining, staking, etc., remuneration being treated as employment income and crypto assets being subject to inheritance tax.
It might come as a surprise to some that crypto asset holders were identified in the first place, considering the anonymous nature of the crypto transactions. Increased sharing of user information with relevant regulatory bodies may become a trend, with Coinbase sharing information with the HMRC on all UK resident users with above £5,000 in crypto holdings in the 2019/20 tax year, thus explaining the notice this time around.