Most deal in small amounts with a median portfolio value of just £300, but others make larger gains – or are criminals taking advantage of the lack of transparency in crypto assets.
While many mainstream investors have understood the intricacies of Bitcoin and Blockchain, they often have little understanding of the implications on their tax bill.
Chris Etherington, tax partner at RSM, says: “Certainly HMRC will be very interested in making sure everyone is paying the right amount of tax and the NFT space is probably further behind your traditional crypto investor. currency in relation to its tax obligations. .”
He says many investors will have been lured into the NFT space by “fear of missing out” on potential big gains regardless of tax bills.
“There is going to be a significant issue for a lot of people who have entered space with regards to April 5 [the end of the tax year]says Etherington. “This is the first year that NFTs have been so successful.”
Surveys suggest that many mainstream investors are unaware of the need to cough up crypto gains. For younger investors, perhaps in particular, Bitcoin and NFTs may have been their first time delving into the world of investing.
As HMRC ramps up its activity to deal with the nascent sector, the prevalence of crypto assets around the world is only growing – as viewers of Sunday’s Super Bowl, the American football final, underlined by being inundated with adverts for digital currencies . NFTs, on the other hand, quickly gained a foothold in the mainstream, with even the British Museum issuing tokens. A character called “CryptoPunk” recently sold for a record $24 million.
Sir Edward Troup, former executive chairman of HMRC, said there was “a good chance” that many casual investors are unaware of the rules on crypto assets, likening the problem to the “builder of money in hand”.
For HMRC, the technological advances that now need to be addressed are “probably a little bit bigger than anything we’ve seen in my lifetime”, he says. “But it’s not so off the scale that you think the tax system is going to collapse or money launderers are going to rule the world.”
Most investors who have invested funds in cryptocurrencies and NFTs will be liable to pay capital gains tax (CGT) when they sell them or use them in a transaction. In this regard, gains should be treated like those made on other investments, such as stocks.
A base rate taxpayer would pay 10% CGT on crypto assets while a higher rate taxpayer – those earning north of £50,271 – would pay 20%. Investors can make a profit of £12,300 in a tax year before they have to start paying CGT.
Some, however, might have to pay income tax instead – especially if they trade a lot or create the NFTs themselves.
Gary Ashford, crypto tax expert at Harbottle & Lewis, says, “If you buy and sell thousands and thousands of crypto assets, you can potentially trade them. And if you trade them in, you’re subject to income tax because that’s just the general tax principle.
“There’s nothing specifically different about crypto compared to other asset classes, the problem is just that people don’t necessarily understand it and think it’s something completely different.”
As well as bolstering resources to combat such evasion, HMRC sent “nudge” letters to crypto investors late last year, to ensure they were paying the correct tax and used powers to force exchanges to hand over lists of investors.
Earlier this month, new guidelines were released on “decentralized finance” in the crypto space, clamping down on a nascent and burgeoning part of the market where investors can earn money through peer financial services. -to-peer, such as lending their digital currencies.
As the tax authorities step up their action against cybercriminals, officials risk being a step backwards in this fast-moving market.
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Source: www.telegraph.co.uk
This notice was published: 2022-02-15 06:00:00
