The UK Releases Cryptoassets for Individuals Tax Policy
On 19 December, the UK’s HM Revenue and Customs published its Cryptoassets for Individuals tax rule for its citizens trading in or getting paid with cryptocurrency. In addition to this, an individual’s tax liability in the event of loss or theft is introduced.
‘The tax treatment of cryptoassets continues to develop due to the evolving nature of the underlying technology and the areas in which cryptoassets are used… HMRC will look at the facts of each case and apply the relevant tax provisions…’
-Cryptoassets for Individuals
Citizens of the UK are now required to pay Income Tax (IT) or Capital Gains Tax (CGT) contingent on the cryptocurrency transaction they undertake. Salaries that take the form of cryptocurrencies are also taxed through an Income Tax and National Insurance.
Taxes for business and companies will be added on a later date.
The policy only covers exchange tokens such as the cryptocurrency Bitcoin. Utility and security tokens call for a different set of rules, with this present policy serving as a guideline.
An Income Tax is applicable to those who are participating in crypto trading. It will be computed based on the profits gained from the trade. The HMRC will use existing laws on trading shares and securities to determine if a particular transaction is classified as a trade.
For airdrops, an Income Tax need not always be applied granted that the assets are accepted in a ‘personal capacity’ and are not a component of a cryptocurrency trade, business, or mining.
Capital Gains Tax
Cryptoassets are chargeable if it has the capacity to be owned and its value can be realized. Thus, those who ‘invest’ in the asset class are required to pay Capital Gains Tax. The HMRC considers the act of buying and selling cryptoassets as an investment activity.
To know how much taxes must be paid is calculated based on the gains or losses when the asset is sold off or given away.
In the event of a theft or loss, the HMRC will still regard the assets as owned by the holder making victims responsible for paying Capital Gains Tax; unless the assets are proven unrecoverable.
And for the purposes of inheritance, cryptoassets will be treated as property subject to Inheritance Tax.