HMRC has published a report on the popularity and understanding of the UK cryptoasset market. Worryingly, it seems that tax knowledge of this specialised, but growing, market remains relatively low. What’s the full story?
Cryptoassets, such as digital currencies and non-fungible tokens, are now a widely available, albeit volatile, investment choice. According to the respondents to the survey that forms the basis of HMRC’s report, 10% of UK have owned cryptoassets, such as Bitcoin etc., at some point. Of those, 68% said they are likely to acquire more in the future. Investing in cryptoassets has tax consequences. There are a number of ways that assets can be acquired, e.g. direct purchase, mining, airdrops linked to existing assets, etc. However, in the vast majority of cases any profits made on their disposal are taxed as a capital gain. The way the gain needs to be worked out can differ according to asset type. Cryptocurrency gains are calculated in much the same way as shares, i.e. subject to pooling, but non-fungible tokens are not pooled as they are distinct and separate from one another.
The report shows that knowledge of the tax consequences of cryptoassests is low. Only 28% of respondents said they had read HMRC’s guidance, and 59% said they knew little or nothing about capital gains tax. As gains can arise in unexpected ways, for example when making purchases using digital currency, it is essential to investors to familiarise themselves with the contents of the Cryptoassets Manual to avoid problems further down the line.
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