Deciphering the taxes of cryptocurrency trusts – a brief outline

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Cryptoassets remain a nebulous world, dividing those who celebrate their use from those who are sceptical about their benefits. There are some (ultra) high-net-worth individuals who form the former category. Some consider putting such assets into a trust.

This article highlights the taxes that can apply and how such assets can be settled on a trust.

What taxes might my cryptoassets be subject to?

The normal tax rules apply. HMRC typically view a disposal of certain cryptoassets at a gain as being subject to UK capital gains tax (CGT). But if trading, such gains can be subject to income tax.

HMRC views certain cryptoassets as situated wherever the ‘beneficial owner’ is resident. For non-domiciled individuals this means they are unable to claim the remittance basis of taxation in relation to gains / income realised because such assets are viewed, by HMRC, as situated in the UK. Although this view has been criticised by many commentators.

How do I transfer my cryptoassets to a trust?

You can settle or lend assets onto trust. The mechanics have to be considered where ‘esoteric’ crypto are involved because of how they are held / used.

Considerations for cryptocurrency trusts

Custody

Managing digital assets is still a novelty to many trustees / directors. Given the complexities and nuances of this type of asset, a third party custodian is typically used.

Residence and Management and Control

Careful consideration should be given to what arrangements are put in place if the beneficial owner is to retain certain powers / control over the cryptoassets settled into a trust structure.

Offshore trust taxation

The normal, complex, UK tax rules apply to offshore trusts, such as if UK resident individuals receive benefits from the trust. The taxation of any company within the trust structure also has to be considered and whether UK corporation tax will apply. This is a complex area and specialist advice is required.

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