The tax agency of the U.K published an exhaustive explanation of how it looks at digital assets plus how users will be taxed on their holdings, on Wednesday, December 19, 2018. Now, individuals who get crypto as a gift won’t pay the same taxes as those anticipating to accumulate money with them.
The UK government agency that collects taxes, Her Majesty’s Revenue & Customs (HMRC), said that the report focuses on how users with cryptocurrencies will be taxed, though it didn’t reveal the tax scheme for cryptos possessed by commercial enterprises. Full guidance about that will be communicated later.
The publication comes after recent reports from the U.K government, regarding virtual assets as a ‘property’ rather than as a type of ‘money.’
HMRC doesn’t regard crypto as money. This shows the stance recently explained by the Cryptoasset Taskforce (CATF) report. The CATF categorised crypto assets as either exchange, utility or security tokens.
Now, this report explains that how crypto is handled for purposes of taxation depends on the crypto’s utility case, instead of its definition.
Investors that buy cryptos believing that their values will soar will have to pay capital gains tax after selling and users that receive cryptos from their respective employers as a method of payment, or from mining and transaction fees will pay income tax and all contributions concerning national insurance.
The report further said that:
“As set out in more detail below, there may be cases where the individual is running a business which is carrying on a financial trade in cryptos and will, therefore, have taxable trading profits. HMRC will publish separate information for businesses in due course.”
Thriftily, HMRC won’t deem the buying and selling of cryptos as ‘gambling.’
The new guidance explains how forks of a distributed ledger technology may affect taxation, explicitly referencing hard forks that result in a chain split with fresh cryptos produced.
The section elaborates how forks happen, when a chain divides, plus how the value for the succeeding cryptos would be ascertained, adding that:
“New cryptos can only be disposed of if the exchange recognizes the new cryptos. If the exchange does not recognize the new crypto it does not change the position for the blockchain, which will show an individual as owning units of the new crypto. HMRC will consider cases of difficulty as they arise.”
HMRC advised that a user will more likely claim that their cryptos have ‘trivial value,’ that could enable them to claim a loss.
U.S citizens are asking the country’s IRS to set the same guidance, and it appears that Britain did well in this part. The part that highly concerns hard forks works on how losses and gains can be effectively ascertained in a very clear way.
However, the U.K has a hefty interest in digital assets, according to the latest research. This makes it a significant step to roll out such an important set of regulations in order to assist clients in exploring how best they will pay their taxes.