HMRC has now set its sights on Cryptoassets and for additional proof that cryptoassets are high profile you only have to look at the Collins Dictionary’s 2021 word of the year. It’s NFT – nonfungible token.
But what are NFTs? NFTs are the crypto-world equivalent of certificates proving you own a digital (or physical) asset: a collectible, like digital artwork, or digital sports cards.
Collins Dictionary isn’t alone in registering public interest in cryptoassets. So, too, is HMRC, and it’s been writing to taxpayers it believes hold cryptoassets to point out potential tax liability.
Disposing of cryptoassets, such as cryptocurrencies like bitcoin, brings a potential charge to capital gains tax (CGT). Disposals include the sale of assets for fiat currency, like pounds or dollars: the exchange of one cryptoasset for another, such as bitcoin to ether: or the use of cryptoassets to buy goods or services. The annual CGT exemption can be used to cover such gains, up to £12,300. If gains exceed this, or chargeable assets worth more than £49,200 (in 2020/21) are disposed of, HMRC should be notified, usually via the self assessment tax return.
The tax position is not always intuitive. Where, for instance, different types of cryptoasset are exchanged, there can be a chargeable taxable gain, even if the assets aren’t converted back to fiat currency.
If you have any questions around cryptoassets and how they are taxed we are happy to advise on cryptoasset transactions to help establish if a tax liability has arisen contact us on 020 7330 0000.