HMRC have recently revised their guidance on the UK tax treatment of cryptocurrencies for individuals; specifically, in relation to “exchange tokens” held by individuals who are not domiciled in the UK for UK tax purposes.  For these purposes, HMRC use the term “exchange tokens” to include more familiar cryptocurrencies such as Bitcoin, as well as other “tokens” which are intended to be used as a method of payment, but which do not carry any other rights or allow access to any particular services. 

As a general rule, UK resident individuals who are not domiciled in the UK may have the option of being taxed in the UK on the “remittance basis”.  Very broadly and among other things, this means that capital gains and income arising outside the UK are often not subject to UK tax, unless they are physically brought into the UK.  This geographical basis for the way non-domiciled individuals are taxed in the UK could therefore create complications (and possibly also opportunities) where the assets in question constitute “exchange tokens”, as cryptoassets generally lack a tangible location.

HMRC have now sought to provide clarity on this in their revised guidance, and indicate that for the “majority of transactions”, they will consider “exchange tokens” held by a UK resident individual to be located in the UK.  While this may not come as a surprise, HMRC do confirm that they have “considered other possibilities”.  HMRC have stated that their logic for taking this approach is that referring to the residency of the beneficial owner provides a “clear, logical, predictable and objective rule which can be easily applied”.   This approach will inevitably mean that HMRC will seek to tax non-domiciled UK resident individuals on income and gains arising from most cryptoassets.  Non-domiciled individuals holding cryptoassets who are either resident in the UK, or planning to move to the UK in the future, should consider seeking tax advice.