New and Updated Information can be found here: A Complete Guide to Tax on Crypto
There is a lot of hype surrounding cryptocurrencies – like Bitcoin, Ethereum and Ripple. However, these decentralised virtual currencies, based on blockchain technologies, are completely unregulated. This means the tax implications of cryptocurrency investment is a rather important area and requires further analysis.
What is all this fuss about?
More and more people are investing in cryptocurrencies. For the uninitiated, cryptocurrencies are based on blockchain. Blockchain is a public record book. It can be connected to anything that resembles a database or spreadsheet. Bitcoin is a prime example; the blockchain shows all the exchanges of all Bitcoin transactions – to be sure, the blockchain only records the transaction, not the ownership of the tokens or coins. The technology is controlled by no one and is decentralised in that there is no ‘middle man’.
What is a Cryptocurrency?
There is a myriad of diverse cryptocurrencies with tokens. From Ripple, Bitcoin and Ethereum, top five popular currencies to the not so popular, like Cannabis Coin and, er, PornCoin. These tokens have generated a speculative boom, some would go so far as to argue a bubble. The popularity is unmistakable. The total market value of the global cryptocurrency marketplace is $500 billion.
A single Bitcoin costs $10,312.20. The value has grown exponentially. In 2013, Bitcoin was worth 8c today over ten thousand dollars. The myriad of diverse coins and tokens have massive market values with tokens ranging from a few cents to literally tens of thousands of dollars. The blockchain underpinning Bitcoin is here to stay with shipping companies, banks and airlines looking at the power of crypto-tokens. Venezuela and Sweden are already looking at fiat-backed digital currencies utilising the blockchain technology. This technology is here to stay!
The G20 meeting in Argentina in March 2018 will see a Franco-German motion outlining possible regulatory frameworks for national cryptocurrency regulation. South Korea and India, two major markets for cryptocurrencies, have started to crack down on the technology – the latter has seen its tax authorities send out tens of thousands of ‘tax notifications’ with requests for capital gains tax on any cryptocurrency investment earnings. The UK government is likewise undertaking a series of regulatory analyses evaluating the cryptocurrency experience in the UK.
What you need to know?
Because of a lack of regulatory oversight, the HMRC are rather vague about cryptocurrencies. The HMRC state: “the tax treatment of virtual currencies, the general rules on foreign exchange and loan relationships apply.” This means that the HMRC do not have ‘bespoke’ rules governing the tax implications of cryptocurrencies. Without any major consensus, the centrality of this experience is to follow the HMRC rules on foreign exchange and loan relationship profits. If you want to talk to our tax team regarding your cryptocurrency tax affairs, why not call our team today on 0203 773 2927 for information?