HMRC is Joining in to Kill the UK Crypto Industry
HMRC gave guidance on its treatment of staking… and it’s not good.
The writing is on the wall for staking in the UK Crypto marketplace or the UK’s place in the Crypto / digital asset industry.
On the 2nd February, HMRC updated its guidance on the treatment of digital assets specifically for staking and lending.
It is logical for HMRC to look at the gains made from staking and lending as income or capital gains for tax purposes. The proposal is that if you receive tokens it will be capital gains, if you receive currency then your returns will be taxed as income.
The problem, and perhaps the opportunity, is that the proposal suggests that although you still have control of your crypto (i.e you have a contract for it to be returned) then HMRC will see this as a disposal for Capital Gains tax. That is problem if you are in profit as it makes staking or lending ( with typical returns of 5%-15%) an unprofitable trade.
….when a token is lent or staked into a platform or protocol, it may be classified as a disposal by the HMRC for tax purposes “at the moment the token leaves the user’s wallet.”
“This means that the transaction will be subject to Capital Gains Tax reporting at that moment, even though control still lies with [users], and they expect that the asset is still theirs and will be returned at a point in the future,”
-CryptoUK
With the downturn we are seeing now, it actually would be a great tool to wash the capital gains from your portfolio in the old style of bed and breakfasting.
Basically if you are now down 20% on your crypto, you could stake it, declare a loss, and have a nice tax break. Of course you are now revaluing your crypto at a lower level and should you stake again you are going to have a higher capital gains tax bill.
It just doesn’t make sense
There is a problem within the UK governmental and regulatory system. That problem is there is no joined up thinking. The FCA wants to treat Crypto as a financial asset and HMRC want to treat it as property, how can you possibly navigate that?
I certainly understand the need to tax income and capital gains, for sure, but why are the regulators and the taxman not sitting down and coming up with a coherent, joined up strategy? At a stroke they could make the UK crypto central and leverage our financial services strengths and the Fintech sector in one fell swoop but there seems to be no desire to do so.
Everybody knows that right now there is a land grab going on, new companies are building the new financial infrastructures of the world and the UK system is not geared up to cope.
The back log of crypto platforms waiting to be approved for AML/KYC is immense. As above, there is no real joined up thinking between departments and the hostility towards anyone dealing with retail investors is palpable.
Inevitably, if the UK doesn’t get its act sorted out pronto, those jurisdictions that are able to act more nimbly and with an open mind will clean up.
