It is perhaps of little surprise, therefore, that businesses and governments have sought to keep pace with this growing popularity.
Following a period of consideration a few years ago HMRC concluded that new and specific tax rules for crypto were not needed and that existing principles and laws could be applied. At the end of March 2021 they updated their dedicated guidance on the taxation of crypto assets and at around the same time they began to feature explicitly on asset declaration templates used in HMRCs more serious types of tax enquiry.
With most activity hosted by non traditional finance platforms, in a low regulation environment, and with the digital methods of buying, holding and selling the assets being somewhat opaque these assets have the potential to cause tax difficulties for their owners.
That may be where the assets are being used in an attempt to conceal income, wealth or transactions from the tax authorities, but could equally be the case for would be compliant taxpayers who are busily buying and selling the assets without either considering the tax implications or making an effort to maintain suitable records.
For the majority of taxpayers transacting in crypto assets with an investment mindset, capital gains tax will be the main duty requiring consideration. Each purchase or sale of a crypto asset will be a CGT event and switching from one asset to another will crystallise gains or losses at the then market value of the assets involved, even though no cash has been generated.
Trying to recreate a transaction history under enquiry a number of years after the event is likely to prove particularly difficult.
Quite aside from the risk and investment merit considerations needed before speculating on virtual assets, I would therefore encourage those moving into crypto speculation for the first time to speak with their professional advisors to make sure they both understand the likely tax consequences and make an effort to maintain a robust set of records on which those tax consequences can be based and justified to HMRC.
The next steps
Should you like to find out more please contact Graham Boar on g.boar@uhy-uk.com or visit our corporate tax service page.
