The tax agency of U.K. (HMRC) has published a detailed explanation on December 19, about crypto assets, what they are, how individuals will be taxed and who can qualify as a cryptocurrency trader.
This report specified the details on how individual crypto holders will be taxed and which records they need to keep.
The report indicates:
“HMRC does not consider cryptoassets to be currency or money. This reflects the position previously set out by the Cryptoasset Taskforce report (CATF). The CATF have identified three types of cryptoassets which are; exchange tokens, utility tokens and security tokens.”
The report specifically focused on exchange tokens, which it explains as “a method of payment”.
According to the report, individuals hold crypto assets as a investment, usually for capital appreciation in its value and they will have to pay Capital Gains Tax when they sell their crypto assets.
Also individuals who receive crypto assets as a form on payment or get them through mining will have to pay Income Tax and National Insurance contributions.
The report continues by detailed explanations on different situations of how taxes would have to be paid in certain situations under titles such as, financial trading, mining, airdrops etc. It also gives some examples to underline these titles.
Blockchain forks is another important title in the report, which is essentially a collectively agreed upon software update which can cause the chain to split and new tokens to be formed.
If an individual holds crypto assets through an exchange, the exchange will make a choice whether to recognise the new crypto assets created by the fork. New crypto assets can only be disposed of if the exchange recognises the new crypto assets. HMRC will “consider cases of difficulty as they arise.”
The tax agency of U.K. also mentioned that they would publish further information about the tax treatment for assets held by businesses or companies.