267 Cryptic crypto


There may soon be tax changes for crypto investors to decipher, says Arun Kakar


IN THE UK THERE are no taxes that apply specifically to cryptoassets such as bitcoin or ethereum. Anyone holding them as a personal investment is subject to capital gains tax (CGT) on their profits, which need to be reported by self-assessment. In some circumstances, cryptocurrency-related activity


may constitute ‘trading’ and may be subject to income tax, but this is rare, notes Charles Russell Speechlys tax partner Dominic Lawrance. ‘It’s quite unusual for the facts to indicate that an individual who is buying or selling investments is “trading”,’ he tells Spear’s. High-frequency transactions may be considered an exception, but ‘most people who hold crypto as an investment are not “trading”’. Could the equation change? In March 2021, HMRC published an internal manual on cryptoassets – its first since 2018 – setting out its current thinking and offering a preview of how things may change. The guidance is not yet law, and HMRC suggested that views ‘may evolve further as the sector develops’. The manual broadened the taxman’s


definition of


cryptoassets to cover areas such as ‘utility tokens’ and ‘security tokens’ (access to rights/interests in a business). HMRC does not consider cryptoassets to constitute money or currency, but individuals who have received them as a form of non-cash payment could be subject to income tax and national insurance. The guidance also stated that cryptoassets should be treated as if they are located where their owner is resident. ‘This will or would [...] have significant tax consequences for non-domiciled individuals or accidental UK residents who hold cryptoassets,’ says Alex Ruffel, international tax partner at Irwin Mitchell. If a client is resident or domiciled in the UK, then under current guidance profits are ‘probably reportable’, Ruffel says. If non-domiciled, investors should ‘certainly look at whether to hold their cryptoassets themselves or place them into a holding vehicle to protect them from taxation, in the same way as such protection is afforded to other assets’.


So, what does it all mean for investors now? It is almost


certainly wise to record and document any crypto dealings, even for transactions involving tokens or holdings that are not covered by existing legislation – such as NFTs – and take advice on how to disclose significant gains. An adviser might even suggest disclosing certain dealings and arguing that they are non-taxable, on the basis that this could guard against possible future penalties that may result from changes that come into force further down the line.


This article was first published in issue 81 of Spear’s Bart Peerless Charles Russell Speechlys FOCUS Succession & estate planning


Sophie Dworetzsky Charles Russell Speechlys


FOCUS International entrepreneurial HNWs


With a client base of entrepreneurs, business owners and high-flying fund managers, Sophie Dworetzsky says her practice is increasing in both ‘depth and detail’ when it comes to family office structuring. She adds that, before setting up an office, HNWs should think about tax efficiency, both from an ownership stake and from a remuneration stake. There are other pertinent questions too, such as, ‘How will the managers be incentivised?’ As for the future, Dworetzsky cites the possibility of tax rises ‘to pay for the black hole’ that Covid-19 will leave behind. She adds that finding a way to do this while maintaining the UK’s tax competitiveness won’t be easy.


It’s been a busy year for Ceris Gardner, thanks in part to her rather broad brief. The private client lawyer heads both the immigration and philanthropy offerings for her firm, Maurice Turnor Gardner. Like many in the profession, Gardner has observed how the pandemic has made more people think about estate planning – which has meant a raft of work on wills and lasting power of attorney. Gardner tells Spear’s she is also seeing pent-up demand from clients who are looking to ‘firm up their plans and actually come to the UK to take advantage of our remittance basis of taxation for non-domiciled individuals’. With Brexit done, she predicts a rush on investor visas from EU citizens.


Ceris Gardner Maurice Turnor Gardner FOCUS International families


We’re seeing clients looking to


come to the UK to take advantage of our remittance


basis of taxation for non-domiciled individuals


Ceris Gardner Maurice Turnor Gardner


‘When unexpected events happen, clients reach for their trusted advisers,’ says Bart Peerless. ‘A global pandemic makes clients reflect and think about the future.’ Many of Charles Russell Speechlys’ top-tier clients seek the advice of Peerless, who has more than 25 years’ experience advising HNWs, trustees and beneficiaries as well as ‘some of the world’s wealthiest’ and most complex families. A typical client has assets in the ‘multi-billion’ or ‘multi-hundred million’ range. ‘Communication really sits at the


heart of it,’ he says, when asked what is important in tax and trust advice. As well as that, he says, it is crucial to ‘be able to reach out to people – and understand what motivates them’.


TAX LAWYERS


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