What are Crypto Assets?
Individuals generally will be treated as holding “cryptoassets” as a personal investment and will be subject to capital gains tax on disposal. Calculating gains may not always be straightforward. Many cryptoassets are traded on exchanges that do not use the pound sterling and it is also common in the crypto world to directly exchange one cryptoasset for another. Because of the volatility in the crypto market, actually valuing cryptoassets on disposal can be complicated. For example, the swapping of bitcoin for a Polkadot token would trigger a disposal for capital gains tax purposes even if no actual currency has been received. In this situation, the individual investors would realise either a taxable gain (or loss) and may need to make further disposals of cryptoassets into actual currency to meet their tax obligations.
Some individuals may also be involved in mining and validating transactions, as well as staking and yield farming. In doing so, they may be rewarded either through the receipt of fees and/or further cryptoassets. Typically, such rewards would be subject to income tax, but whether that amount is treated as trading income or not would depend on the particular facts and applying the case law principles of trading versus investment to those facts. Non-domiciled individuals and cryptoassets The very nature of cryptoassets is that they are decentralized and digital in nature and do not have a physical location or exist anywhere.
It also brings to question whether other types of tokens (other than exchange tokens) are to be treated the same and whether the mechanism by which an individual accesses their cryptoassets always amounts to beneficial ownership. Nonetheless, if UK resident, non-UK domiciled individuals personally purchase cryptoassets using that untaxed foreign income or gains, then they may have remitted those funds into the UK and triggered a tax liability at the point of purchase. Further, if those individuals go on to dispose of those cryptoassets and realize a gain, that gain may be taxable in the UK—without the benefit of the remittance basis of taxation. As individuals increasingly earn income on their cryptoassets, that income may be considered UK-source and taxable on an arising basis as well.
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