UK tax body Her Majesty’s Revenue & Customs released a major update to their guidelines for taxing cryptocurrency investors this past week. The current update affects individual investors, not businesses who own cryptocurrency; a separate guidance for businesses will be released at a later date.
The guidance confirms, in short, the general trend at HMRC to treat cryptocurrencies somewhat more like property than money, dividing them into exchange tokens, security tokens and utility tokens. The HMRC has warned that only specific treatment of exchange tokens, for example Bitcoin, would be handled in the current release.
Of crucial importance in the guidance is the clarity that HMRC will not treat cryptocurrencies as gambling. Thus, profits gained from their possession will not be exempt from tax in the way other gambling profits, for instance poker winnings, generally are. In calculating the tax due on crypto holdings, individuals may pool certain crypto assets and treat them as one entity. Investors who buy coins simply to speculate upon their value will be liable for capital gains tax on sale of the assets; those who gain them via mining or other means, such as airdrops, will be liable for income tax.
The news that there will no carve-out for exempting cryptocurrencies from being taxed due to being classified as a form of gambling will be no surprise to some, but others will have been clinging to this hope in the face of what has been a very turbulent year for the major coins. Most, including Bitcoin, have tanked lately; Bitcoin has come down to around $4,000 in value from a peak of over $19,000 in December 2017, and Ripple and Ethereum have also seen their values decline significantly.
