The press has been awash this week with news of a potential tax loophole related to profits from cryptocurrency speculation, such as investment in Bitcoin. After a huge spike in value this year, followed by some very turbulent weeks for Bitcoin and other leading cryptos, many speculators appear to have sold their holdings towards the end of the year, garnering huge profits. Now it appears that HM Revenue and Customs may not be due to see their usual slice of the pie.
Essentially, it comes down to the fact that, in the UK, activities such as gambling and betting are not considered trading, since they are assumed to rely on luck rather than skill, and thus are not subject to taxation. This is the case with poker in the UK, for example; despite it being widely regarded as a game of skill, the High Court has previously determined it to be a game of luck, and therefore by this precedent it remains non-taxable.
HMRC has indicated that individuals deemed to have traded seriously in crypto, as they would buy and sell other assets, may be liable to pay capital gains tax, and some accountancy firms are advising that people declare their crypto gains as capital gains, and pay tax on these. But it remains a bit of a grey area under current legislation, dependent, in HMRC’s own words, on the “degree of skill and organisation” involved.
For now, it seems likely that this year at least, a number of people profiting from their cryptocurrencies’ rising in value may be treating those returns as gambling winnings for tax purposes. Indeed, many financial pundits have condemned those very investments as akin to gambling in recent news items. It seems likely that as this issue grows, new regulations and new HMRC guidelines will be forthcoming.
