If you invest funds in digital assets, cryptoassets, it’s possible to generate taxable earnings as well as incur losses. Additionally, engaging in specific tasks may yield taxable revenue in the form of digital assets. In this article, we outline the fundamental principles concerning UK taxation related to cryptoassets for individuals in an easy-to-read question-answer format.
- What are cryptoassets?
- Why might I have to tell HMRC about my cryptoassets and pay tax on them?
- Do I have to pay tax when I ‘dispose of’ cryptoassets for a profit or gain?
- Is the profit or gain treated as capital disposal or income from trade?
- How do I calculate the profit and report it to HMRC?
- Do I still need to report my cryptoassets disposals to HMRC if I’m not trading and the value of disposed of cryptoassets is less than the annual capital gains tax-exempt amount?
- What if I make a loss on the disposal of my cryptoassets?
- What if the private key to my cryptoasset wallet is stolen or lost and how would HMRC treat that?
- What are the implications of receiving cryptoassets?
- What is cryptoassets mining?
- How can mining be earned as a reward?
- How does HMRC treat income from mining?
- What is cryptoassets staking, and how can it be earned as a reward?
- How does HMRC treat income from staking?
- In which circumstances is the return on staking cryptoassets treated as a capital receipt?
- How does HMRC treat the transfer of ownership of staking cryptoassets to an individual or a lending platform?
- What is an airdrop?
- What is the difference between airdrops earned without doing anything vs airdrops earned for doing something, and how does HMRC treat both types?
- How does HMRC treat employment income in cryptoassets which are easily exchanged for cash vs cryptoassets not easily exchanged for cash?
- What happens if your employer has not deducted tax from you under PAYE and HMRC is unable to collect tax from you via adjustment to your tax code or other means?
- What records should I keep for tax if I have cryptoassets?
- What if I make a loss on my trading income or miscellaneous income from cryptoassets?
- How do I work out if I am ‘trading’ in cryptoassets?
- Can you summarise the tax and national insurance treatment of different cryptoasset activities?
- Do I have to pay UK tax on cryptoasset income if I’m not domiciled in the UK and claim the remittance basis of taxation?
- How does being not resident in the UK affect tax on cryptoassets in terms of Capital Gains Tax, Income Tax and Inheritance Tax?
- How can I find the location of cryptoassets?
- How are cryptoassets treated for means-tested benefits?
- Where can I find more information?
What are cryptoassets?
Cryptoassets are a type of digital or virtual currency that use cryptography (a fancy word for secret codes) to secure transactions and control the creation of new units. The most well-known cryptoasset is Bitcoin, but there are many others too, including Ethereum, Polygon and Tether.
NFTs, or Non-Fungible Tokens, are a special type of cryptoasset that represent ownership of unique digital items, like art, music, or collectibles. Think of them like trading cards in the digital world, where each card is different and can be bought, sold, or traded.
Traditional currencies, like dollars or pounds, are issued and controlled by governments and banks. Cryptoassets, on the other hand, are decentralised, which means any single authority does not control them. They usually run on a technology called blockchain, which is like a digital ledger that keeps a record of all transactions.
Now, let’s talk about taxes. In the UK, the HMRC (Her Majesty’s Revenue and Customs) considers cryptoassets as property, not currency. This means they can be taxable, depending on how you use or trade them. For example, if you sell a cryptoasset for more than you bought it for, you might have to pay taxes on the gain you make.
Why might I have to tell HMRC about my cryptoassets and pay tax on them?
In the UK, you might have to pay tax on your cryptoassets and report them to HMRC for various reasons. Here are some common ways you can earn money from cryptoassets and the associated tax implications:
Capital Gains Tax: If you sell, trade, or exchange your cryptoassets for a higher value than when you acquired them, you may have to pay Capital Gains Tax on your profit. This also applies if you use your cryptoassets to buy goods or services.
Income from mining/staking: If you mine new cryptoassets or participate in staking, your rewards may be considered income. You might need to pay Income Tax on the value of the cryptoassets you receive from these activities.
Decentralised Finance (DeFi): If you earn interest or other rewards by lending your cryptoassets or participating in DeFi platforms, this income may be subject to Income Tax.
Airdrops: If you receive free cryptoassets through an airdrop, the value of the assets might be considered as income and be taxable.
Payment from an employer: If your employer pays you in cryptoassets for your work, the value of the cryptoassets you receive might be subject to Income Tax, just like regular wages.
To report your cryptoassets to HMRC, you’ll need to include information about your transactions in your annual Self-Assessment tax return and any other income you need to report. It’s essential to keep accurate records of your cryptoasset transactions so you can calculate and report your tax obligations correctly.
Do I have to pay tax when I ‘dispose of’ cryptoassets for a profit or gain?
Yes, you may have to pay tax when you ‘dispose of’ cryptoassets for a gain or profit. Let’s start by explaining what ‘disposing of’ cryptoassets includes:
- Selling cryptoassets for fiat currency (like pounds or dollars)
- Exchanging one type of cryptoasset for another
- Using cryptoassets to buy goods or services
- Gifting cryptoassets to someone else (except to a spouse or civil partner)
Now, let’s discuss how the gain or profit may be affected by the tax-free allowance and UK residency or domicile:
Tax-free allowance: In the UK, you have an annual tax-free allowance called the Annual Exempt Amount for Capital Gains Tax (CGT). For the tax year 2022/2023, this allowance is £12,300, but for the tax year 2023/24, it is reduced to £6,000. You won’t have to pay CGT if your total capital gains (from cryptoassets and any other assets) are below this amount. If your gains exceed the allowance, you’ll pay CGT only on the amount above the allowance.
UK residency and domicile: If you are a UK resident, you will generally be obliged to pay tax in the UK on your worldwide income and capital gains, including gains from disposing of cryptoassets. If you are not a UK resident but are domiciled in the UK, you may still be liable for UK taxes on your cryptoassets, depending on your specific circumstances. Non-residents typically don’t have to pay CGT on gains from disposing of cryptoassets, except in specific situations (e.g. if the assets are used in a UK trade).
Is the profit or gain treated as capital disposal or income from trade?
Whether a profit or gain from cryptoassets is treated as capital disposal or income from trade depends on the specific circumstances of each case. Here’s a general overview:
Capital disposal: When you dispose of cryptoassets as an investment (e.g., selling, exchanging, or using them to buy goods or services), the profit or gain is usually treated as a capital gain, and you may be subject to Capital Gains Tax (CGT). This is the most common situation for individuals who buy and sell cryptoassets as a form of investment.
Income from trade: If you are frequently trading or dealing with cryptoassets as part of a business or trade, the profit or gain may be considered as trading income, and you would be subject to Income Tax instead of CGT. Examples of activities that might be regarded as trading include mining, receiving payment for services in cryptoassets, or running a cryptoasset exchange.
Determining whether your activities constitute a trade or capital disposal can be complex, and it’s essential to consider factors such as the frequency and nature of the transactions, the level of organisation, and your intentions.
How do I calculate the profit and report it to HMRC?
You’ll need to follow the steps below to calculate the gain on your cryptoassets and report it to HMRC. Here’s a brief overview, including similarities to shares, treatment of different types of cryptoassets, and NFTs:
Record-keeping: Keep detailed records of your cryptoasset transactions, including the date, type of transaction, the number of units, and the value in pounds sterling.
Pooling: Like shares, cryptoassets of the same type (e.g., Bitcoin, Ether, etc.) are treated as a single asset pool. When you dispose of a cryptoasset, you’ll need to calculate the gain based on the average cost of all the assets in that pool. Different types of cryptoassets are considered separate assets and should be accounted for separately.
NFTs: NFTs are not treated like shares, as each NFT is unique. When calculating gains on NFTs, you’ll need to consider the specific NFT’s purchase and sale value.
Market value: You’ll need to calculate the market value of the cryptoassets in pounds sterling at the time of each transaction. This involves converting the value of the cryptoassets from their original currency (e.g., US dollars) to pounds sterling using the exchange rate at the time of the transaction.
Example
Let’s say you’re a UK resident and domiciled individual who bought 1 Bitcoin for $10,000 on January 1, 2020 and sold it for $20,000 on December 1, 2020. Assuming the exchange rate was £1 = $1.30 when you bought and £1 = $1.40 when you sold:
- Convert the purchase and sale values to pounds sterling: £7,692.31 (10,000 ÷ 1.30) and £14,285.71 (20,000 ÷ 1.40).
- Calculate the gain: £6,593.40 (£14,285.71 – £7,692.31).
If you have made several transactions involving different cryptoassets, you’ll need to calculate the gain separately for each type (e.g., Bitcoin, Ether, etc.) and pool the assets accordingly.
To report your gains to HMRC, include the information in the Capital Gains section of your self-assessment tax return.
Do I still need to report my cryptoassets disposals to HMRC if I’m not trading and the value of disposed of cryptoassets is less than the annual capital gains tax-exempt amount?
If you’re not trading and the total value of your disposed cryptoassets is less than the annual Capital Gains Tax (CGT) exempt amount, you generally don’t need to report the disposals to HMRC. However, it’s still good practice to keep records of your cryptoasset transactions in case you need to provide information to HMRC in the future or if your gains exceed the Annual Exempt Amount in subsequent years.
Even if you don’t need to report the disposals, maintaining records of your transactions can help you track your investment history and ensure accuracy when calculating gains or losses.
What if I make a loss on the disposal of my cryptoassets?
If you make a loss on the disposal of cryptoassets, you can generally claim relief for this against future capital gains. This process is called “loss relief”. It allows you to reduce your overall capital gains in coming years by the amount of the loss you’ve incurred.
To claim loss relief, you’ll need to report the loss to HMRC in your Self-Assessment tax return for the year in which the loss occurred. Once reported, you can carry forward the loss and offset it against future capital gains until it is fully utilised.
What if the private key to my cryptoasset wallet is stolen or lost? How would HMRC treat that?
If you lose access to your cryptoassets because you’ve lost your private key to it, or it’s stolen, then they could become virtually worthless. HMRC does not treat the loss of a private key as a disposal for tax purposes because you still technically own the cryptoassets, even though you can no longer access them.
In this situation, you may be able to make a negligible value claim. A negligible value claim allows you to treat the cryptoassets as if they have been disposed of and reacquired at a value of “negligible” (effectively worth nothing) for tax purposes. This could result in a capital loss, which you could then use to offset other capital gains.
You must meet the following conditions to make a negligible value claim:
- You still own the cryptoassets (even though you cannot access them).
- The cryptoassets have become of negligible value, typically due to the loss of the private key or another event rendering them inaccessible.
If you meet these conditions, you can make a claim in your self-assessment tax return for the year in which the cryptoassets became of negligible value. You must include information about the cryptoassets, the date they became of negligible value, and evidence supporting your claim.
What are the implications of receiving cryptoassets?
When you receive cryptoassets, the tax implications depend on the nature of the transaction and your specific circumstances.
Here’s a summary of various situations and the potential tax consequences:
Cryptoassets received as a reward
If you receive cryptoassets as a reward for mining, staking, or participating in airdrops or decentralised finance (DeFi) platforms, this income may be subject to Income Tax. You’ll need to value the cryptoassets in pounds sterling using the exchange rate on the date you receive them.
Cryptoassets received as a gift
Generally, you don’t have to pay Income Tax on the value of the cryptoassets if you receive them as a gift. However, the person making the gift may be subject to Capital Gains Tax if the gift is considered disposal. If the gift is made within the UK, there might be Inheritance Tax consequences if the value of the gift exceeds the available allowances and exemptions.
Trading income and the trading allowance
If you’re frequently trading or dealing with cryptoassets as part of a business, the profit or gain may be considered trading income, subject to Income Tax. In this case, you can use the trading allowance (£1,000 for the tax year 2022/2023) to offset some of your trading income. If your trading income is below the allowance, you don’t need to report it to HMRC. However, if your trading income exceeds the allowance, you’ll need to pay Income Tax on the amount above the allowance.
Miscellaneous income
If your cryptoasset income doesn’t fall under trading income but is still considered taxable, it may be classified as miscellaneous income. In this case, you can use the miscellaneous income allowance (£1,000 for the tax year 2022/2023) to offset some of your miscellaneous income. If your miscellaneous income is below the allowance, you don’t need to report it to HMRC. However, if your miscellaneous income exceeds the allowance, you’ll need to pay Income Tax on the amount above the allowance.
What is cryptoassets mining?
Mining is the process of validating and adding new transactions to a blockchain. Miners use computer hardware and specialised software to solve complex mathematical problems. When they successfully solve a problem, they can create a new block, which is then added to the blockchain.
How can mining be earned as a reward?
Miners devote time and energy (in the form of computational power) to maintain the integrity of the blockchain and ensure transactions are secure and legitimate. As a reward for their work, miners usually receive newly created cryptoassets and/or transaction fees associated with the transactions in the block they validated.
Here’s a more detailed explanation of the mining process:
- A group of unconfirmed transactions is bundled together into a block.
- Miners compete to solve a complex mathematical problem that requires significant computational power.
- The first miner to solve the problem broadcasts the solution to the network.
- Other nodes in the network verify the solution, and if correct, the new block is added to the blockchain.
- The successful miner receives a reward in the form of newly created cryptoassets and/or transaction fees.
How does HMRC treat income from mining?
HMRC treats income from mining cryptoassets as taxable income. If you’re mining as an individual, the rewards you receive from mining activities are subject to Income Tax. You’ll need to value the cryptoassets in pounds sterling using the exchange rate on the date you receive them.
In addition to Income Tax, you may also have to pay National Insurance Contributions if your mining activities are considered a trade or business.
It’s essential to keep accurate records of your mining activities, including the date, type, and value of the cryptoassets you receive, to report your income correctly to HMRC.
What is cryptoassets staking, and how can it be earned as a reward?
Staking is the process of participating in the validation of transactions and the maintenance of a blockchain network by locking up a certain amount of cryptoassets in a wallet to support the network’s operations. Staking is commonly used in Proof of Stake (PoS) and similar consensus mechanisms as an alternative to the energy-intensive mining process in Proof of Work (PoW) systems.
Here’s a more detailed explanation of the staking process:
- Users lock up a certain amount of cryptoassets in a wallet, effectively “staking” them.
- The staked assets are used to help validate transactions and maintain the network’s security.
- In return for staking their assets, users earn rewards in the form of additional cryptoassets or other benefits, such as increased influence over network decisions.
- The more assets a user stakes, the higher their potential rewards and influence within the network.
How does HMRC treat income from staking?
In general, income from staking cryptoassets is subject to Income Tax. You’ll need to value the cryptoassets in pounds sterling using the exchange rate on the date you receive them.
In which circumstances is the return on staking cryptoassets treated as a capital receipt?
In some circumstances, the return on staking cryptoassets may be treated as a capital receipt rather than income. This might occur when the staking rewards are considered a “capital appreciation” resulting from the existing holding of cryptoassets rather than an income source. However, the specific tax treatment depends on individual facts and circumstances.
How does HMRC treat the transfer of ownership of staking cryptoassets to an individual or a lending platform?
Transferring ownership of staking cryptoassets to another individual or a lending platform could be considered a disposal for tax purposes. You may be subject to Capital Gains Tax on any gain realised from the transfer.
What is an airdrop in crypto?
An airdrop is a distribution of tokens or coins, typically for free, to multiple wallet addresses. Airdrops are often used as a marketing strategy by new cryptoasset projects to generate interest and increase the user base or by established projects to reward their existing users or promote new features.
What is the difference between airdrops earned without doing anything vs airdrops earned for doing something, and how does HMRC treat both types?
There are two main types of airdrops:
Airdrops received without doing anything: These airdrops are distributed without the recipient having to take any specific action. The distribution might be based on the recipient’s existing holdings of a particular cryptoasset or simply for holding a wallet on a specific platform. In this case, HMRC usually considers the airdropped tokens as a windfall and not subject to Income Tax. However, when you eventually dispose of these airdropped tokens (e.g., by selling or exchanging them), any gain you make will be subject to Capital Gains Tax.
Airdrops received for doing something: These airdrops require the recipient to perform specific tasks or activities, such as signing up for a platform, promoting the project on social media, or participating in a referral program. In this case, HMRC generally treats the airdropped tokens as taxable income, subject to Income Tax. The value of the tokens should be calculated in pounds sterling using the exchange rate on the date you receive them. Similar to the first type of airdrop, any gain made when disposing of these tokens will also be subject to Capital Gains Tax.
How does HMRC treat employment income in cryptoassets which are easily exchanged for cash vs cryptoassets not easily exchanged for cash?
When you receive employment income in the form of cryptoassets, the tax treatment depends on whether the cryptoassets can be easily exchanged for cash (readily convertible assets or RCAs) or not.
Cryptoassets easily exchanged for cash (RCAs): If you receive cryptoassets that can be easily converted into cash, HMRC treats them as an RCA. In this case, your employer is required to account for any Income Tax and National Insurance contributions due through the Pay As You Earn (PAYE) system. This means your employer will deduct the tax and National Insurance contributions before the cryptoassets are transferred to you. You will receive the net amount after these deductions.
Cryptoassets not easily exchanged for cash: If the cryptoassets you receive as employment income cannot be easily converted into cash, they are not considered RCAs. In this scenario, your employer is not obligated to use the PAYE system to deduct Income Tax and National Insurance contributions. Instead, you’ll need to declare the income yourself through the self-assessment process. The value of the cryptoassets should be calculated in pounds sterling using the exchange rate on the date you receive them.
What happens if your employer has not deducted tax from you under PAYE and HMRC is unable to collect tax from you via adjustment to your tax code or other means?
If your employer has not deducted tax under PAYE and HMRC cannot collect the tax from you through an adjustment to your tax code or other means, you will need to declare the income and pay the tax due via self-assessment. This involves registering for self- assessment, completing a tax return, and paying any Income Tax and National Insurance contributions owed by the relevant deadlines.
What records should I keep for tax if I have cryptoassets?
Keeping accurate records of your cryptoasset transactions is essential for tax purposes. The records you need to keep may vary depending on whether you use cryptoassets as capital investments or for trading. Here’s an overview of the records you should maintain for both scenarios:
Cryptoassets as capital investments: If you hold cryptoassets as capital investments, you’ll be subject to Capital Gains Tax when you dispose of them. For this purpose, you should maintain records that include:
- The date of acquisition and disposal of each cryptoasset
- The type of cryptoasset (e.g., Bitcoin, Ethereum, etc.)
- The number of units held or disposed of
- The value of the cryptoassets in pounds sterling at the time of acquisition and disposal
- The costs associated with the acquisition and disposal, such as transaction fees and commissions
- Any other relevant information that may impact your capital gains calculations, such as pooling, same-day, and 30-day rules
Cryptoassets for trading: If you’re actively trading cryptoassets, the profits or gains may be considered trading income and subject to Income Tax. In this case, you should keep records that include:
- The date of each transaction
- The type of cryptoasset involved in each transaction
- The number of units bought or sold in each transaction
- The value of the cryptoassets in pounds sterling at the time of each transaction
- The costs associated with each transaction, such as transaction fees and commissions
- Any other relevant information related to your trading activities, such as staking rewards, mining income, airdrops, and DeFi activities
Maintaining detailed records will help you accurately calculate and report your taxable income or capital gains to HMRC in both scenarios. It’s a good practice to keep these records for at least six years, as HMRC may request them to verify your tax declarations or conduct an audit.
What if I make a loss on my trading income or miscellaneous income from cryptoassets?
If you make a loss on your trading income or miscellaneous income from cryptoassets, the way you use the loss for tax purposes depends on whether the income is treated as trading income or miscellaneous income:
Loss on trading income
If your cryptoasset activities are considered trading (e.g., buying and selling cryptoassets frequently with the intention of making a profit), any losses you incur can be offset against your other trading income in the same tax year. If your total trading losses exceed your total trading income in a tax year, you can carry forward the remaining losses to offset against future trading income. The losses can be carried forward indefinitely until they are fully utilised.
Loss on miscellaneous income
If your income from cryptoassets is treated as miscellaneous income (e.g., income from mining, staking, or airdrops), any losses you incur can generally be offset against miscellaneous income in the future. However, the loss cannot be offset against other types of income, such as trading income or employment income.
It’s important to keep accurate records of your cryptoasset transactions and losses, as you’ll need this information to calculate your taxable income and report it to HMRC.
How do I work out if I am ‘trading’ in cryptoassets?
Determining whether your cryptoasset activities constitute trading can be challenging, as there is no specific definition for trading in cryptoassets under UK tax law. The onus is on you to determine whether your activities should be classified as trading income, miscellaneous income, or capital investment. This distinction is crucial, as it impacts how your income or gains are taxed and the allowances you can claim.
To determine if you are ‘trading’ in cryptoassets, consider the following factors:
- Frequency of transactions: Are you buying and selling cryptoassets regularly and frequently?
- Intention: Is your primary objective to profit from short-term market fluctuations?
- Organisation: Do you conduct your activities in a systematic, organised manner similar to a business?
HMRC may consider your activities as trading if you demonstrate a consistent pattern of buying and selling cryptoassets with the intention of making a profit. If your activities are more occasional or driven by personal reasons, they are more likely to be treated as capital investment or miscellaneous income.
Annual allowances for each type:
Trading income
If your activities are classified as trading, you’ll be subject to Income Tax on your profits. There’s no specific annual allowance for trading income, but you can use the Trading Allowance of £1,000 per tax year to offset your trading income if you qualify. If your trading income is below this threshold, you won’t have to pay Income Tax on it.
Miscellaneous income
If your activities result in miscellaneous income (e.g., mining, staking, or airdrops), you’ll also be subject to Income Tax on your profits. There’s no specific annual allowance for miscellaneous income. However, the Trading Allowance of £1,000 may also be used to offset miscellaneous income in certain circumstances.
Capital investment
If your activities are classified as capital investment, any gains you make when disposing of your cryptoassets will be subject to Capital Gains Tax. The annual Capital Gains Tax exempt amount is £12,300 for the 2022/23 tax year. If your gains from disposing of cryptoassets are below this threshold, you won’t have to pay Capital Gains Tax on them.
Can you summarise the tax and national insurance treatment of different cryptoasset activities?
| Activity | Tax | Allowances | Notes |
| Buying and disposal of cryptoassets | – Capital Gains Tax
– Income Tax (trading) |
CGT allowance, Personal allowance, trading and miscellaneous income allowance | Applicable tax and allowance depend on whether the activity is treated as capital investment or trading |
| Mining | – Income Tax (trading)
– Income Tax (miscellaneous) |
Personal allowance, trading and miscellaneous income allowance | |
| Staking | – Capital Gains Tax
– Income Tax (trading) – Income Tax (miscellaneous) |
CGT allowance, Personal allowance, trading and miscellaneous income allowance | It depends on whether treated as capital appreciation, disposed of gain or an income source |
| Airdrops | – Income Tax (trading)
– Income Tax (miscellaneous) |
Personal allowance, trading and miscellaneous income allowance | It depends on whether received as a reward for doing something or for free without doing anything |
| Employment duties | Income Tax | Personal allowance | Employee Class 1 NICs to pay if the cryptoasset can be easily exchanged for cash |
Note: Class 2/4 NICs are applicable on activities deemed as Trading Income.
Do I have to pay UK tax on cryptoasset income if I’m not domiciled in the UK and claim the remittance basis of taxation?
If you’re not domiciled in the UK but are considered a UK tax resident, you may still be subject to UK tax on your cryptoasset income, including income from mining or staking. However, the specific tax treatment will depend on whether you’re using the remittance basis of taxation or not.
If you claim the remittance basis of taxation
When using the remittance basis, you’ll only pay UK tax on your foreign income, including cryptoasset income from mining or staking, when you bring (remit) that income into the UK. Remember that claiming the remittance basis may require giving up your personal allowance and the annual exempt amount for Capital Gains Tax. Additionally, you may have to pay the Remittance Basis Charge if you have been a UK resident for a certain number of years.
If you don’t claim the remittance basis of taxation
In this case, you’ll be subject to UK tax on your worldwide income, including cryptoasset income from mining or staking, regardless of whether or not the income is brought into the UK.
How does being not resident in the UK affect tax on cryptoassets in terms of Capital Gains Tax, Income Tax and Inheritance Tax?
Being non-domiciled in the UK can affect how your cryptoasset gains and inheritance are taxed. Here’s an overview of how being non-domiciled may impact your tax liability for capital gains and inheritance tax:
Capital Gains Tax: If you are non-domiciled but considered a UK resident for tax purposes, you are generally subject to Capital Gains Tax on your worldwide gains, including those from cryptoassets. However, if you claim the remittance basis of taxation, you will only be taxed on your gains from cryptoassets that you bring (remit) into the UK. Remember that claiming the remittance basis may require giving up your personal allowance and annual exempt amount for Capital Gains Tax. If you have been a UK resident for a certain number of years, you may also have to pay the Remittance Basis Charge.
Non-domiciled individuals who are not UK residents are generally not subject to Capital Gains Tax on their gains from cryptoassets, except in specific situations such as gains from UK residential property.
Income Tax: As a non-resident, you generally won’t be subject to UK Income Tax on your income from cryptoassets, such as mining, staking, or airdrops, unless the income is sourced in the UK. In practice, determining the source of income for cryptoassets can be complex, and it may depend on factors such as the location of the servers used for mining or the activities leading to the income.
Inheritance Tax: Inheritance Tax (IHT) is charged on the value of your estate when you pass away or make certain gifts during your lifetime. If you are non-domiciled, your UK-based assets, including cryptoassets held in a UK wallet or exchange, may be subject to IHT. However, your non-UK assets are typically only subject to IHT if you are deemed to be domiciled in the UK for IHT purposes, which can occur if you have been a UK resident for at least 15 out of the previous 20 tax years.
Remember that even if you are not subject to UK tax on your cryptoassets, you might still have tax obligations in your country of residence or other jurisdictions.
How can I find the location of cryptoassets?
Cryptoassets, such as cryptocurrencies and NFTs, are digital and do not have a physical location. However, for tax purposes, the location of cryptoassets typically follows the tax residence of the beneficial owner. The tax residence of the beneficial owner is the country where they are considered a tax resident, and the tax laws of that country will usually apply to their cryptoasset transactions.
For example, let’s consider an individual who is a tax resident in the UK, domiciled in Germany, and owns Bitcoin in US dollars. The disposal of that Bitcoin could be subject to UK tax, as the individual is a tax resident in the UK. The gains made on the disposal of the Bitcoin would not be excluded from UK tax, even if the remittance basis were applied, because the individual’s tax residence is in the UK, and the location of the cryptoasset follows the tax residence of the beneficial owner.
In some cases, the location of a cryptoasset may depend on the underlying asset it represents. An exception to the general rule of cryptoassets following the tax residence of the beneficial owner is when a cryptoasset is a digital representation of an underlying asset (e.g. gold bullion). In such cases, the cryptoasset’s location will follow the location of the underlying asset.
For example, if an NFT represents gold bullion stored in a specific vault in Switzerland, the location of the NFT for tax purposes would be considered Switzerland, as it follows the location of the underlying gold bullion.
It is important to understand the nature of the cryptoasset you own and consider any underlying assets it may represent to accurately determine its location for tax purposes. Consult a tax professional or the HMRC’s guidance for the most up-to-date information on determining the location of your cryptoassets and the tax implications based on your tax residence and domicile. Tax laws can change, and individual circumstances may vary.
How are cryptoassets treated for means-tested benefits?
Cryptoassets can impact means-tested benefits in the UK, as they may be considered part of your total assets or income when determining your eligibility for these benefits. Means-tested benefits are government-provided financial assistance programs designed to help individuals and families with low income or limited assets. Some examples include Universal Credit, Income Support, and Housing Benefits.
When assessing your eligibility for means-tested benefits, the Department for Work and Pensions (DWP) or the relevant local authority will consider various factors, such as your income, savings, and other assets. Cryptoassets, like cryptocurrencies or NFTs, may be considered part of your total assets, similar to cash or other investments.
The value of your cryptoassets may affect your eligibility for means-tested benefits in two ways:
- Capital/assets: If the value of your cryptoassets, combined with your other savings and assets, exceeds the specified threshold for a particular benefit, you may become ineligible for that benefit or receive a reduced amount.
- Income: If you earn income from your cryptoassets, such as from mining, staking, or airdrops, this income may be considered when determining your eligibility for means-tested benefits. Regular income from your cryptoassets could reduce the amount of benefits you receive or make you ineligible for certain benefits.
It’s important to declare your cryptoassets and any income derived from them to the relevant authorities when applying for means-tested benefits. Failing to do so may result in penalties or other consequences.
Remember that individual circumstances may vary, and regulations can change. Consult a benefits advisor, a tax professional, or the relevant authorities for the most up-to-date information on how cryptoassets are treated for means-tested benefits.
Where can I find more information?
For more information on cryptoassets and their tax implications in the UK, you can consult the following resources:
HM Revenue & Customs (HMRC)
The HMRC has published comprehensive guidance on the taxation of cryptoassets, which covers various topics like capital gains tax, income tax, and inheritance tax. This guidance is on the HMRC’s website:
https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals
GOV.UK
The official UK government website provides information on various topics, including tax, benefits, and financial regulations. You can search for cryptoassets-related guidance or refer to specific sections related to tax and benefits:
Citizens Advice
This organisation offers free, confidential, and impartial advice on various issues, including tax, benefits, and financial matters. You can find information on their website or contact them for personalised advice:
https://www.citizensadvice.org.uk/
Tax professionals
Consulting a tax professional or an accountant with experience in cryptoassets can help you better understand your tax obligations and provide personalised advice based on your specific circumstances.
Remember that regulations and guidance can change over time, and individual circumstances may vary. Always consult the most up-to-date information and seek professional advice when necessary.