“We want to approach this in the same way as we approach other bits of the fintech sector in that we don’t want to stifle innovation, particularly in relation to the underlying technology, but equally we want to manage the risk.” – David Ra, deputy director of banking and credit at HM Treasury, on cryptocurrencies.
In a statement from the HMRC on cryptocurrencies, Bitcoin in specific is defined as asset whereas other cryptocurrencies have to be looked into case by case. Overall, cryptocurrencies are legal in the United Kingdom and underlie tax and ICO regulations. Nevertheless, the full extent of regulatory efforts for the usage of virtual currencies is still evolving.
Crypto taxation in the UK
Depending on the extent to which the currency is used, it can be subject to income tax or capital gains with the latter being the most probable case and therefore looked into more deeply in this article. Gains have to be computed when a disposal is made e.g. the exchange or sale of cryptocurrency in sterling or any other fiat currency. Further examples: when exchanging for another cryptocurrency, when exchanging for goods or services, when gifting the cryptocurrency. For the tax category capital gains, the tax rate is 20% (for most assets) and will apply at the realization of gains. Chargeable gains can be reduced with losses from the year. Moreover, a loss can be carried forward to set against chargeable gains in future years.
Activities that are exempt from tax liabilities are activities which generate speculative gains e.g. wins from gambling or betting. Other exeptions occur depending if the action is considered a trade, a hobby or a commercial act. This has to be regarded case by case.
For 2018/2019 the annual tax-free allowance (for individual’s asset gains) is £11,700. Nevertheless, if selling up to four times the annual allowance (£46,800 for 2018/19) of cryptocurrency, even if the profit made is less than £11,700, the sale has to be reported to the HMRC. The tax year runs from 6 April to 5 April the following year. At latest taxes must reported by 31 December after the tax year during which the gains were made.
In July 2018, the UK joined ‘The Joint Chiefs of Global Tax Enforcement,’ or ‘J5,’ a coalition which tackles the issue of cryptocurrency-enabled crime such as money-laundering or tax evasion. Read more here: Tax Authorities enter the market.
ICO regulations in the UK
Regarding initial coin offerings (ICO), the UK’s Financial Conduct Authority (FCA) has issued a customer warning. In general, ICOs are allowed but are subject to future regulations. As for now, the FCA states ICOs to be "very high-risk, speculative investments," and that "there is a good chance of losing your whole stake as an investor." Currently the regulations are to be interpreted freely by ICO operators. However, the UK is having a look at ICOs and altcoins hence new regulations may be announced soon.
UK banks on cryptocurrencies
The financial sector in the UK is fragmented, with some banks embracing cryptocurrencies and especially the technology behind them and others totally banning virtual currencies. Here’s a list of banks that e.g. allow or ban the purchase of Bitcoin.
Allowed to buy Bitcoin: HSBC, Santander, Natwest, TSB, Royal Bank of Scotland, Barclays
Banned to buy Bitcoin: Virgin Money, Lloyds Bank
In recent years, it has been observed that the trade in cryptocurrencies such as Bitcoin, Litecoin and Ethereum has steadily increased. However, many cryptocurrency owners do not consider that the profits or losses from trading cryptos are taxable. Therefore Blockpit offers software that meets the requirements for traders of Bitcoin, Ether and Co. Besides the webapp Blockpit also offers a mobile app that is free for iOS and Android. With the API import, transactions can be imported from different exchanges without much effort. Taxes on cryptocurrencies do not need to be complicated – use Blockpit
The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim neither correctness nor accuracy. For detailed information on crypto regulations we recommend contacting a certified legal advisor in the specific country.
As this blog post referrs to international crypto laws, the content will only be available in English. If you have any questions, please feel free to contact us on one of our social media channels.