The United Kingdom’s tax agency, HMRC (Her Majesty’s Revenue and Customs) has recently released its guidelines on how crypto investors should declare profits and losses incurred from their digital asset activities.

The guidelines released are currently only relevant to individuals, with business guidelines soon to follow.

Clarity For Crypto Investors

After months of speculation as to how the U.K. tax entity would approach digital assets, HMRC has finally released its official publication, which has been named Cryptoassets for Individuals.

The tax collection service has classified three types of crypto assets that will be liable for taxation:

  • Exchange Tokens
  • Utility Tokens
  • Security Tokens

The agency states that the taxation protocol will differ based on how each token is used, not by how each token is defined.

Depending on the types of cryptocurrency transactions they’re involved in, individuals will pay either Capital Gains Tax or Income Tax when they dispose of their holdings. Examples of what constitutes as a “disposal” include using crypto to pay for goods and services or transacting one digital asset into another.

HMRC have made it clear that although individuals can claim transaction fees on their tax return, costs incurred from mining activities, namely as electricity bills, are not tax deductible.

If individuals receive cryptocurrency payments from their employer, they’re obligated to pay Income Tax and make NI (National Insurance) payments, similar to social security contributions.

One of the most notable pieces of information from the taxation policy is how an individual can’t claim back on stolen crypto holdings — for example, losses incurred through having their crypto wallet hacked. The document reads on the matter:

“HMRC does not consider theft to be a disposal, as the individual still owns the assets and has a right to recover them. This means victims of theft cannot claim a loss for Capital Gains Tax.”

Inheritance tax will also be applicable to any digital assets left to family members after an individual passes away.

One For The Record Books

HMRC have advised all crypto investors to keep a close record on all cryptocurrency transactions, citing that many exchanges may not hold sufficient transaction data after a certain period, if at all.

Examples of records that should be kept include:

  • the type of crypto asset
  • date of the transaction
  • if they were bought or sold
  • number of units
  • value of the transaction in pound sterling
  • the cumulative total of the investment units held
  • bank statements and wallet addresses, if needed for an inquiry or review

The tax authority also discusses the evolving nature of digital assets, stating that it will amend its policy on a case-by-case basis as the industry progresses:

“The tax treatment of cryptoassets continues to develop due to the evolving nature of the underlying technology and the areas in which cryptoassets are used. As such, HMRC will look at the facts of each case and apply the relevant tax provisions”

U.K. Clamps Down

As previously mentioned, cryptocurrency taxation policy in the United Kingdom has been speculated for some time. However, it seems the U.K. is now taking solid steps forward when it comes to regulation of digital assets. As previously reported, the country’s Financial Conduct Authority (FCA) has doubled the number of firms it’s probing with regards to cryptocurrency activities.


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