With more and more people dabbling in cryptocurrency and cryptoassets, HMRC are conscious that people may not be aware of the tax implications of holding these types of assets.
Its concern is highlighted by the fact that it has actually published a manual that solely deals with cryptoassets.
There are a number of ways that a person can be caught out from a tax perspective.
I would suggest that the main area is whether what the person is doing is actually running a business buying and selling cryptoassets as opposed to holding the assets as an investment. Each case will be decided on its own facts and to date there is little case law specific to cryptoassets to assist a taxpayer. The first point would be to look at the “badges of trade” which is the common starting point for any situation where you are trying to establish whether someone is trading or not.
The other area which taxpayers could come unstuck is making disposals without realising it. A disposal happens not just when you cash in your crypto by converting it into pounds sterling, but also when you swap one crypto for another, for example Ethereum for Solana, a gift of coins i.e. parent gifts crypto to a child, or you buy something using your crypoasset i.e. a pint at your local pub.
Then there are other areas that need to be considered such as “Staking” which is akin to interest being received on a bank account. This is taxable and is likely to be treated as miscellaneous income.
“Airdrops” is another area which involves newly issued crypto being paid to coin-holders. Whilst the receipt of an airdrop may not be taxable it will need to be recorded and taken into account at a future date, say on the disposal of the cryptoassets.
“Mining” and “Forks in the blockchain” are also common events in cryptoassets, which again will need to be considered.
My recommendation to anyone holding cryptoassets, not matter how large the holding, is to familiarise themselves with HMRC’s manuals so they are aware of the sorts of things they need to watch out for so they do not get caught out in the future.
If you wish to discuss the above further please do not hesitate to contact either myself or my colleague, Peter Crozier.