On 19 December 2018, HM Revenue & Customs (“HMRC”) published guidance on how individuals possessing cryptoassets may be taxed (the “Guidance”). In particular, the Guidance covers:
- what crypoassets are;
- which taxes apply to individuals holding cyrptoassets;
- the taxation of cryptoassets received as earnings; and
- record keeping requirements.
HMRC has yet to publish detailed guidance in respect of the taxation of cryptoasset transactions involving businesses and companies, which will be published in due course.
1. Cryptoassets
In line with the final report published in October 2018 by the Cryptoassets Taskforce[1], HMRC does not consider cryptoassets to be currency or money. Three types of cryptoassets are identified:
- exchange tokens;
- utility tokens; and
- security tokens.
HMRC does not consider the buying and selling of cryptoassets to be the same as gambling.
2. Income Tax
HMRC will tax cryptoassets based on the activity of an individual holder. If the individual holder is carrying on a trade, then income tax will be applied to any trading profits arising.
The Guidance considers in some detail the tax treatment in respect of:
- mining;
- fees from mining; and
- airdrops.
3. Capital Gains Tax
In HMRC’s view, in the majority of cases, the buying and selling of cryptoassets by an individual will amount to investment activity. As such, individuals will be liable to pay capital gains tax (“CGT”) on any gains realised on disposal of their cryptoassets.
Although cryptoassets are digital and intangible, such assets amount to “chargeable assets” for CGT purposes if they are capable of being owned and have a value that can be realised.
The guidance also sets out what constitutes a disposal, which includes:
- selling cryptoassets for money;
- exchanging cryptoassets for a different type of cryptoasset;
- using cryptoassets to pay for goods or services; or
- giving away cryptoassets to another person.
The Guidance considers the CGT issues arising in respect of allowable costs, pooling, blockchain forks, losses, losing public/private keys and defrauding and theft.
4. Cryptoassets Received as Earnings
HMRC will treat cryptoassets received as employment income to amount to “moneys worth” which will be subject to income tax and National Insurance contributions on the value of the asset received.
The Guidance considers the tax issues arising in respect of cryptoassets provided in the form of Readily Convertible Assets (known as RCAs) and those provided in a form that is not. The Guidance also considers the tax issues arising in respect of cryptoassets provided by third parties in connection with employment.
5. Record Keeping
The Guidance makes clear HMRC’s expectation that individuals keep separate records in respect of each cryptoasset transaction entered into.
Co-authored by Fatima Butt
[1] See our article ‘Cryptoassets Taskforce publishes report on cryptoassets and distributed ledger technology’ for further information
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