How the UK Treat Cryptoassets

With the increase in cryptoassets, particularly cryptocurrency, it is worth knowing how they are treated for tax purposes in the UK.

(HMRC accepts that) most people hold cryptoassets as a personal investment. This means that when you dispose of your cryptoassets you are likely to be subject to Capital Gains Tax on any profit.

Cryptoassets have been subject to much debate and HMRC has published guidance around their view of how these assets are treated. Please refer to current HMRC guidance links for individuals and businesses as well as decentralised finance (DeFi).

What is considered as disposing of a cryptoasset?

HMRC consider the following as disposing of cryptoassets:

  • selling tokens for money
  • exchanging tokens for other tokens
  • using tokens to pay for goods or services
  • giving away tokens to another person (unless it is a gift to a civil partner or spouse)
What expenses can be claimed?

When you dispose of cryptoassets there are certain costs that can be deducted:

  • the GBP consideration originally paid for the asset
  • transaction fees paid for having the transaction included on the distributed ledger
  • advertising for a purchaser or a vendor
  • professional costs to draw up a contract for the acquisition or disposal of the tokens
Where are cryptoassets located for tax purposes?

The difficulty for authorities is to determine the situs of cryptoassets, given that cryptoassets are digital it is difficult to identify their location, and this can have significant impacts especially for people using the remittance basis.

If there is an underlying asset, then the location of the underlying asset will determine the location of the cryptoasset.

If there is no underlying asset, HMRC takes the view that the location of the cryptoasset is determined by the residency of the beneficial owner. Meaning that if a UK resident owns a cryptoasset with no underlying asset, they will be deemed liable to UK taxes even if taxed on the remittance basis.

It is important to consult a professional US/UK tax advisor to ensure the correct treatment of your cryptoassets is taken.