Today, the Government of the United Kingdom published the paper “Cryptoassets for individuals.” It reflects the current legislation of taxing Bitcoin and other cryptocurrencies according to the HMRC (Her Majesty’s Revenue and Customs).
On December 19th, the United Kingdom Government issued a paper concerning the taxation of revenues from trading Bitcoin and other cryptocurrencies. The government assumes that most individuals hold digital assets like Bitcoin (BTC) to make a profit. Therefore, crypto investors have to pay capital gains tax. According to the paper:
“In the vast majority of cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation in its value or to make particular purchases. They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.”
If individuals are mining cryptocurrencies or receiving Bitcoin (BTC) from their employers for services, income tax and insurance premiums will be charged accordingly, according to the HMRC.
Definition of Cryptocurrencies
For the HMRC, a cryptocurrency is a “digital representation of value or contractual rights”. These rights can be
- traded electronically
They divide between exchange tokens, utility tokens, and security tokens. It is important to note that besides this definition, the government does not consider cryptocurrency to be currency or money in a traditional sense.
Bitcoin regulation based on securities
The legislation is based on the existing rules for securities when trading Bitcoin. It goes as following:
“A trade in cryptoassets would be similar in nature to a trade in shares, securities and other financial products. Therefore the approach to be taken in determining whether a trade is being conducted or not would also be similar, and guidance can be drawn from the existing case law on trading in shares and securities.”
Ultimately, the HMRC will decide every situation on a case-by-case basis. Authorities cannot automatically assume that trading is taking place. That’s not the case when exchanging one cryptocurrency for another. Furthermore, taxpayers can claim losses through crypto trading in their tax returns.
Loss of Private Keys
The HMRC also recognizes that everyone is responsible for their private keys. Nevertheless, everyone can communicate the loss of private keys to the authority:
“If an individual misplaces their private key (for example throwing away the piece of paper it is printed on), they will not be able to access the cryptoasset. The private key still exists as part of the cryptography, albeit it is not known to the owner any more. Similarly the cryptoassets will still exist in the distributed ledger. This means that misplacing the key does not count as a disposal for Capital Gains Tax purposes.”