The United Kingdom’s tax authority, Her Majesty’s Revenue and Customs (HMRC), has made it mandatory for individuals to declare their cryptocurrency holdings in their tax returns, making it a separate category in the tax form. The new crypto tax UK rule, which takes effect tax year 2024-25, is aimed at improving transparency and preventing tax evasion in the crypto industry.
The move comes as part of the UK Treasury’s 2023 budget, which focuses on tackling economic challenges, including COVID-19 recovery, climate change, and promoting growth. The inclusion of crypto assets in tax declarations is a significant step towards regulating the UK’s crypto industry, which has grown exponentially in recent years.
According to a document released by the UK Treasury on Wednesday, the government plans to make changes to the Self Assessment tax return forms, which will require individuals to declare their cryptoassets separately. This new requirement is set to be implemented for the tax year that ends in April 2025.
The UK Treasury has previously expressed concerns over the potential misuse of cryptocurrencies, citing their anonymity and the possibility of them being used to facilitate illegal activities such as money laundering and terrorist financing. By making it mandatory for individuals to declare their crypto holdings, the government aims to increase transparency and identify potential tax evaders.
Capital Gains Tax
The new rule applies to all individuals who hold cryptocurrency, regardless of the amount. Failure to comply with the new regulations could result in penalties and potential legal action. It is worth noting that crypto-to-crypto transactions are also subject to tax, meaning individuals will need to declare any gains made from trading cryptocurrencies.
The crypto industry in the UK has welcomed the move, with many experts stating that it will provide much-needed clarity and legitimacy to the industry. However, some have criticised the government for not doing enough to regulate the crypto industry, with concerns raised over the lack of guidance on how to calculate tax on crypto assets.
Crypto Tax UK Guidance:
In response, the HMRC has provided guidance on how to calculate tax on crypto assets, stating that individuals will need to calculate their gains and losses in pounds sterling at the time of the transaction. This means that individuals will need to keep track of the value of their crypto holdings in pounds sterling, as the value of cryptocurrencies is highly volatile and can fluctuate rapidly.
Chartered Institute of Taxation
The Chartered Institute of Taxation (CIOT) welcomed the changes, stating that it will raise awareness of tax obligations regarding crypto assets. However, Gary Ashford, the CIOT’s deputy president, emphasised the need for further measures to address the widespread ignorance of tax payment and reporting requirements for cryptocurrency. Ashford also noted that low-income crypto investors often lack sufficient understanding of tax reporting.
The move towards regulating the UK’s crypto industry is part of a global trend, with many countries, including the United States, Japan, and Australia, introducing similar regulations to improve transparency and prevent tax evasion in the crypto industry.
United States Internal Revenue Code
US President Joe Biden in his annual budget for 2024, proposed tax policies aim to eliminate the like-kind exchange provision, also known as Section 1031, from the Internal Revenue Code. The administration hopes that removing this provision will prevent the “ultra-wealthy” from exploiting the loophole.
Financial Conduct Authority
The Financial Conduct Authority (FCA) informed the Treasury in early March that it is in the process of a significant reset as the Financial Services and Markets bill moves through Parliament. The bill, once passed, will grant the FCA new regulatory authority over the cryptocurrency industry.
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