On 19 December 2018, the UK tax authority, HM Revenue and Customs (“HMRC”), published a policy paper on the taxation of cryptoassets. The guidance is limited to HMRC’s view in relation to individuals holding cryptoassets and does not extend to tokens or assets held by businesses. The guidance confirms that HMRC does not consider cryptoassets to be currency or money for tax purposes and separates crypto assets into three categories of “tokens”: exchange tokens, utility tokens and security tokens. The guidance focuses on the taxation of “exchange tokens,” a term encompassing assets such as Bitcoin.
HMRC considers that in the “vast majority” of cases, individuals hold (and acquire and dispose of) cryptoassets as part of a personal investment and will be liable to capital gains tax. HMRC only expects individuals to be buying and selling cryptoassets with such frequency such that it amounts to a financial trade in itself in “exceptional circumstances”. If the cryptoassets are considered to be held as part of a trade, the income tax provisions will take priority over the capital gains tax provisions.
Individuals will be liable to income tax (and national insurance contribution, where appropriate) on cryptoassets which they receive from their employer as a form of non-cash payment (and which may be collected via withholding tax) and/or in return for “mining” the cryptoassets, “transaction confirmations” or “airdrops”. The guidance describes these transactions and the applicable taxes. In addition to the tax analysis, HMRC points out that the onus is on individuals to keep separate and sufficient records for each cryptoasset transaction for the purposes of their tax records.