Month: September 2024

Taxation of Crypto assets

This article deals with `exchange tokens` like Bitcoins, not with assets like NFTs or stablecoins. It is written for Individual tax payers.

HMRC does not treat Crypto as currency or money1.

Most common scenario is of an individual investing in Crypto optimistic for an increase in its value. Any gains or loss in such a case is treated similar to investment in shares. Rules such as pooling, same day and 30-day2 apply even if crypto held in different exchanges9.

Please note sale of crypto takes place even if it is exchanged for another crypto asset, it is used to buy goods/services or given away to a person (not their spouse)8.

International matters

Gains need to calculated in pound sterling3.

Location of asset – In HMRC’s view, exchange tokens are located where the owner is tax-resident. This rule will be of importance to remittance basis users, as their crypto gains will be taxable even if they do not remit funds to the UK4.

Other taxes

Stamp duty – not applicable5.

VAT – not applicable. But if a trader sells goods or services in exchange of crypto assets, the trader will need to charge VAT6.

Loss

In case of fraud – HMRC does not consider theft as a sale, a negligible value claim can be made7.

In case of loss – similar treatment as in case of shares. Three things to be aware of:

  1. Capital losses will be adjusted against gains in same year.
  2. Carry forward indefinitely and adjust against first available gains.
  3. Cannot be carried back except in case of death.

Disclosure service

HMRC has launched a cryto disclosure service for individuals who may have not paid the correct amount of tax in past tax years.8.

Notes:

  1. CRYPTO10100 means loan relationship rules do not apply.
  2. TCGA 92 sections Pooling (104) Same-day (105) 30-day (106A)
  3. CRYPTO40100
  4. CRYPTO22600
  5. CRYPTO44100
  6. CRYPTO45000
  7. CRYPTO22450
  8. Check cryptoasset disclosures, HMRC tells taxpayers | ICAEW
  9. Share and securities matching rules apply to assets which are fungible assets i.e. assets which are not individually identifiable. Tolley annual CGT book 64.2

Further readings:

Taxation of Dividends

In this article we look at the intricacies of tax computation on dividend income for individuals.

Tax rates

We are aware that dividends are taxed at special rates which are lower than non-saving rates. But, if the foreign income is taxed on the remittance basis, they are taxed at basic, higher or additional rates.1

Resident individuals

Stock dividends from non-UK companies are not taxable. 2

The charge to tax on foreign dividends is on the full amount of the dividends arising in the tax year – ITTOIA05/403. This is different from the paid basis that applies to dividends and other distributions from other UK companies. 3

Dividends from venture capital trusts are exempt from tax, up to shares worth £200k.4

Non-resident individuals

Where a non-resident receives dividend from a UK company, he is treated as if he has already paid tax @ dividend ordinary rate. But this credit is not repayable. 5

Withholding tax

No withholding tax in the UK. But payments to non-residents, UK (under many DTAAs) is entitled to impose 15% withholding tax.

High Income benefit charge (HICBC) and Dividend allowance

Dividend allowance (currently 2024-25 at £500) may reduce tax liability but is counted as income for HICBC calculation.

Dividend allowance, personal saving allowance and starting rate for savings income do not apply to foreign income remitted to the UK.7

Bonus

  1. Expenditure: professional fees – fees for advice about markets or management of a portfolio, not allowable.6

Notes

  1. RDRM31320
  2. ITTOIA05 Sec 402 (4) and SAIM5210
  3. SAIM5210
  4. VCM51200
  5. ITTOIA 2005 Sec 399.
  6. CG15280
  7. ITA 2007, s13 and s18