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Crypto Tax Update: HMRC publishes updated guidance on the taxation of cryptoassets for individuals – situs of exchange tokens

  • United Kingdom
  • Crypto assets
  • Tax planning and consultancy



What’s new?

On 20 December 2019, HMRC published an updated version of its guidance on the taxation of cryptoassets for individuals.

The guidance was updated to include a new section in respect of the location (situs) of exchange tokens (i.e. those cryptoassets, like Bitcoin, which are used as a means of exchange and enable the buying and selling of goods and services). This new section does not specifically deal with situs in respect of other types of cryptoassets such as utility tokens and security tokens.

The new section is primarily aimed at non-UK domiciled individuals calculating their annual UK tax liability on the remittance basis, and for UK inheritance tax purposes.

Location (situs) of exchange tokens – impact of updated guidance

The key point arising from the updated guidance is that HMRC consider that throughout the time an individual is UK resident the exchange tokens they hold as beneficial owner will be located in the UK.

As a result, a person who holds exchange tokens is liable to pay UK tax if they are the beneficial owner of the exchange tokens, UK tax resident and carry out a transaction with their token which is subject to UK tax.

Broadly speaking, non-UK domiciled individuals are required to pay UK tax on their remitted foreign income and gains but not any unremitted amounts. The updated guidance cuts across this position for those non-UK domiciled individuals who become UK tax resident (irrespective of how long for) as the exchange tokens held by them upon becoming resident will be treated as being located in the UK and within the scope of the UK capital gains tax net. Such individuals will now be subject to capital gains tax on any gains arising on the disposal of such exchange tokens made by them whilst being UK tax resident and will not be able to shield such gains from UK tax under the remittance basis (even if they were acquired when they were not UK resident).

Similarly, based on the updated guidance, non-UK domiciled individuals who become UK tax resident (again, irrespective of how long for) and who hold exchange tokens when they die will be subject to UK inheritance tax in respect of these tokens.

Non-UK domiciled individuals who effectively hold their exchange tokens with a cryptocurrency exchange which is not located in the UK may find HMRC’s guidance somewhat hard to reconcile.

HMRC’s simple test for determining situs for exchange tokens represents a clear shift in approach from established legal tests and principles. It will be interesting to see if this approach is challenged by taxpayers not content with the outcome.

Next steps

With the 31 January 2020 self assessment deadline for individuals looming, non-UK domiciled individuals who are holding exchange tokens will need to consider the potential impact of the updated guidance on their remittance basis calculations and UK inheritance tax.

It is not known when (if at all) HMRC intend to publish any specific guidance on situs of utility tokens and security tokens; however, non-UK domiciled individuals should consider what the impact of HMRC’s current guidance might be given that it provides starting principles to be considered for such tokens.

For further detail on the guidance please read it in full here: Cryptoassets: tax for individuals. Please find a link to our previous briefing in respect of the other sections of HMRC’s guidance: Crypto Tax Update: HMRC Publishes Guidance on the Taxation of Cryptoassets for Individuals.

If you would like to discuss any issues in this briefing please get in contact with the team below.