Taxation of cryptocurrency

Where is my cryptocurrency located and how will I be taxed on it as a non-domiciliary?

In the UK, cryptocurrency is not taxed as currency. Instead, if you hold it as an investment, you are likely to be subject to capital gains tax on any gain if you sell or otherwise dispose of it. In certain circumstances, profits from cryptocurrencies may be taxed as income.

If you are resident but neither domiciled nor deemed domiciled in the UK and you claim the remittance basis of taxation, you are only subject to UK tax on overseas income and gains if you remit them (eg bring them) to the UK, and you are generally subject to UK inheritance tax only on UK assets. But where is cryptocurrency, such as Bitcoin, located for these purposes?

HMRC view cryptocurrency as located where the beneficial owner is resident. This means you cannot claim the remittance basis in relation to cryptocurrency income or gains and you are subject to inheritance tax on the cryptocurrency.

HMRC’s view is not law. It does not appear to be based on any legal principle. There are no statutory rules on cryptocurrency. So it is up to the Courts. Looking at case law principles relating to other types of asset, it could be said that the location of cryptocurrency is where it can be effectively dealt with. This could be, for example, the location of the private key or of the person who has control of the private key.

The difficulty is that if the way you complete your tax return is inconsistent with HMRC’s view, you should make a white space disclosure and expect HMRC to resist it. An appeal to the Tax Tribunal may be required to resolve the point.

It may be possible for a structure to hold cryptocurrency (or other cryptoassets) in such a way that income/gains are not taxed as they arise. Some individuals, particularly those moving to the UK, are considering such structuring to mitigate the effect of HMRC’s approach.