HMRC 2014 Brief on Bitcoin and other Cryptocurrencies

ozaz

Hello,

I'm trying to make some sense of HMRCs Bitcoin Brief and how it relates to my situation. I'd very much appreciate it if anyone could help.
https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies

My situation is I've used a small amount of my money (less than 5% of savings) on purchasing Bitcoin and about 15 other cryptocurrencies. I hope to realise gains on them over a timescale of months to years.

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From the Brief

Chargeable gains: CT and CGT - if a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules, it would normally be taxable as a chargeable gain or allowable as a loss for CT or CGT purposes. Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for CT on chargeable gains if they accrue to a company.

I don't understand the phrase "not within trading profits or otherwise within the loan relationship rules". Could anyone explain this to me or point me to somewhere to learn more?

I also don't understand whether I treat all cryptocurrencies within my portfolio as equivalent, with a chargeable event only happening when I convert one of the cryptocurrencies back to Sterling? Or is a direct conversion between two cryptocurrencies (say Bitcoin to Ethereum) a chargeable event?

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Also from the brief

....depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable.. For example gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits..

I'm not sure if the concept of ICOs (Initial Coin Offerings) existed when the brief was written in 2014. But do you think it could be argued that a purchase of an ICO is so highly speculative that it should not be taxable?

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Finally, I've seen it mentioned online that the relevant tax for those trading cryptocurrencies is income tax rather than capital gains tax (although its not apparent to me where this comes from).

To be able to invest in multiple cryptocurrencies I do have to engage in trading-like activity: Buy Bitcoin using Sterling -> send it to a trading exchange (e.g. Bittrex) -> convert it to a different cryptocurrency. This is because you can't convert Sterling directly to most cryptocurrencies (at least not easily).

However, I consider what I do to be more akin to investing rather than trading (since aside from sometimes buying Bitcoin to enable purchase of a different cryptocurrencies, the intention is always to hold the other cryptocurrency for at least a few months rather than profit from any within day price movements) and so I believe CGT and not IT is the correct tax for my activities. Is this fair?

jimmo

Probably the easiest way to consider whether your cryptocurrency trading amounts to a Trade would be to compare your activities with HMRC's view on more traditional stocks and shares trading.
HMRC normally takes the view that an individual who buys and sells shares using his own, or borrowed money is not exercising a trade for tax purposes.
The usual story is that people who are successful in their dealings are happy to accept HMRC's default view potentially paying Capital Gains Tax if they are very successful but some of those who lose money try to argue that they are exercising a trade in order to claim loss relief to set against their general income.
If you want to go into any more detail than that I suggest that you start by reading all the content listed here.
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim56800

The loan relationship rules are all about Corporation Tax and, as an individual, you can safely ignore that.
More light reading if you wish.
https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm30000