Tax situs of Bitcoin and similar crypto-assets

Tax situs of Bitcoin and similar crypto-assets

Mon 03 Feb 2020

HMRC has extended its guidance on the tax treatment of crypto-assets held by individual investors to set out its view on where exchange tokens are located for tax purposes. This is primarily of interest to non-UK domiciliaries:

  • considering claiming the remittance basis of income tax and capital gains tax in respect of income or gains arising on such tokens; or
  • seeking to argue that they are not UK assets for inheritance tax purposes.

HMRC considers that throughout the time an individual is UK resident, the exchange tokens he or she holds as beneficial owner will be located in the UK. The effect of HMRC’s view is that a person who holds exchange tokens is liable to UK tax if UK resident and carrying out a transaction with those tokens that is subject to UK tax.

For further advice on the tax treatment of crypto assets, please get in touch with a member of the Mazars personal tax or corporate tax teams.

Technical consultation document: Fifth Money Laundering Directive and Trust Registration Service

Exchange tokens and other crypto-assets

Exchange tokens are assets intended to be used as a method of payment and the definition encompasses ‘crypto-currencies’ like bitcoin.

All crypto-assets use a system known as ‘Distributed Ledger Technology’ (DLT) in which typically they are not underpinned by any person, group or asset; instead the crypto-asset’s value derives from its use as a means of exchange or investment.

Other crypto-assets can include:

  • utility tokens which provide access to goods or services through a DLT or similar platform; and
  • security tokens, representing the holder’s interest in a business such as a debt or entitlement to a share of profits.

It therefore follows that the fact that an asset is DLT-based does not automatically mean it is an exchange token.

Joint ownership

If an exchange token is co-owned between two or more beneficial owners then section 275C Taxation of Chargeable Gains Act 1992 applies (for Capital Gains Tax). Each beneficial owner’s interest in the asset will be where that beneficial owner is resident. If one or more of the co-owners are UK resident, this will not affect the location for those co-owners who are not UK resident.