- UK is formulating new rules and framework for crypto taxation
- Crypto assets will be treated for the purposes of inheritance tax also
- Relevant common-law principles must underpin how residence is determined, STEP argues
Crypto taxation is always the topic of discussion as the Financial Services and Markets Bill in Britain integrates crypto assets into the mainstream financial sector.
After receiving its second reading in parliament, the extensive bill, which is currently being reviewed by a committee, expands the scope of regulation to include stablecoins, paving the way for their use as a recognized form of payment in the United Kingdom.
Taxation issues are now firmly on the legislative agenda as crypto becomes more mainstream.For instance, the government recently demanded proof from stakeholders regarding the taxation of crypto asset loans and stakes associated with decentralized finance.
Hot property?
Questions like whether the underlying economics of the involved transactions and their tax
treatment could be better aligned were the focus of the consultation.
The debate over crypto taxation in the United Kingdom will be defined by a wide range of issues, including inheritance, pensions, and dealing with theft losses.
How crypto assets will be treated when it comes to inheritance tax is a crucial question.The U.K.’s tax authority, HMRC (Her Majesty’s Revenue and Customs), reiterated its position in August that cryptocurrency will be considered property in this regard.
According to HMRC, crypto assets can be found anywhere the beneficial owner resides.The Society of Trust and Estate Practitioners (STEP), a professional organization in the inheritance field, points out, however, that this position appears to be based on a pragmatic conclusion rather than a legal principle.
When, for instance, the private key needed to access crypto assets is held by a third party, such as a cryptocurrency exchange or custodian, or when multiple people jointly own the assets, complications arise.STEP argues that the determination of residence must be guided by relevant common law principles.
In addition, it is unclear whether distinct crypto assets ought to be grouped together when designated as property.For instance, should utility tokens, which grant holders access to blockchain-based services, and payment tokens, which are primarily mediums of exchange, be treated similarly?
Pension tax treatment
If crypto is indeed property, putting these assets into pension plans could result in income tax relief.At the moment, HMRC maintains that crypto assets cannot be used to make a tax-free contribution to a registered pension scheme because it does not consider them to be money or currency.
How the Bank of England would treat a future central bank digital currency (CBDC), which is relevant to this discussion, is a question.Will authorities continue to maintain that privately issued cryptocurrencies should be subject to different regulations if such CBDCs are, as anticipated, recognized as money and thus eligible for pension scheme tax relief?
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Extending the exemption
The Investment Manager Exemption” (IME), which covers a large portion of the fund management industry, will now include cryptocurrency, according to a recent announcement made by the British government.
The IME makes it clear to non-resident funds with a U.K.-based investment manager that they do not have a taxable presence in the U.K. because the majority of global funds do not have a location in the United Kingdom.
The Investment Transactions List (ITL), which is used to determine who qualifies for the exemption, does not currently include crypto assets.
The overall goal of HM Treasury’s strategy is to establish the United Kingdom as a leading destination for cryptocurrency investments and employment.
The Financial Services and Markets Bill, which regulates stablecoins, established a “Cryptoasset Engagement Group” that works closely with the industry, and introduced a crypto sandbox that provides a secure environment for business participants to experiment with blockchain technology. These proposed measures set the plan in motion earlier this year.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing
