Bitcoin and cryptocurrency trading in UK
The UK has strong credentials, not least for having the highest number of crypto exchanges and a hefty percentage of the population owning crypto – nearly 5%. Most of these holders are investors looking for gains rather than using crypto to transact. The UK also has a very high number of Bitcoin nodes: the total of 249 puts it as the fifth highest in this category. Institutionally, however, the UK is not head over heels about crypto. The government is considering some form of dampening of the crypto craze, possibly looking at a regulatory crackdown on digital promotions and other assets, like non-fungible tokens (NFTs), for which no particular strategy has evolved. There is an ongoing licensing delay for exchanges that may or may not be resolved at the time of writing – and could lead to exchanges leaving the country. There is also the restricting of Bitcoin ATMs that may dampen demand. That said the UK has moved up to number 11 from 14 as something of a frisky crypto thoroughbred.
The UK scores a high rating thanks to the wide range of crypto services offered and ever-clearer guidance and transparency. As yet, the UK remains more of an investment center for crypto rather than a spending hub.
Law and crypto trading in UKLegal - existing crypto legislation
Investing and trading in bitcoin is legal in the UK and there are an established number of leading crypto exchanges that make it easy and straightforward to buy, sell and invest in bitcoin (BTC) and other cryptocurrencies. Cryptocurrency trading is regulated in the UK to prevent money laundering, although some types of crypto assets may be regulated depending on how they are structured.Legal - forthcoming crypto legislation
The United Kingdom’s approach to cryptocurrency regulation has been measured and restrained. There are no specific cryptocurrency laws on the horizon and as yet cryptocurrencies are not considered to be ‘money’ or pose an immediate threat to the financial system overall. However, the Financial Conduct Authority (FCA) and the Bank of England do urge strong caution against the use of crypto assets, as they lack the usual protection surrounding accepted currency and are deemed highly volatile.
Taxing cryptocurrencies in UK
If you are a casual trader, the gains from your crypto trading will fall into the welcoming lap of capital gains tax, but not income tax, and any gains you are fortunate enough to make will be eligible for 20% CGT. If you are a professional trader of crypto, your gains will be taxed as income and you’ll also pay income tax on interest received on coins that you lend out – even if the interest is received in the form of other coins. In all cases HMRC urges you to keep records and dates of all your transactions as penalties for tax evasion can be stiff – and ignorance will be no excuse (especially if you’ve been ignorant enough to make lots of money). When your cryptocurrency is used to buy goods or services, VAT will be due on those goods or services in the usual way.
In the eyes of the UK Government, bitcoin is largely unregulated and for taxation purposes, they are viewed in the same way as private money. So when your crypto is exchanged for a fiat currency, there will be no Value Added Tax (VAT) due on the value of bitcoin itself. Also, while any profits and losses on digital currency trading in the UK are also subject to UK Capital Gains Tax (CGT), UK residents enjoy a useful allowance of up to £12,000, although this may vary if you live in Scotland or are domiciled outside the UK. On the plus side, your cryptocurrency holdings, if untraded and left in your wallet or exchange, won’t incur any tax until you make a disposal.
Tax when moving residency
Bitcoin is a global currency, and crypto exchanges and wallets operate across borders, however, as a permanent resident of any other country you’ll be taxed according to its requirements. If you change country but remain a UK-based citizen, you’ll be taxed in the UK.
Tax on mining
It’s highly unlikely that you will mine profitably for any of the major coins in the UK as mining requires massive computing power and energy expenditure. Given that, it is possible to mine newer coins and your returns from this activity (if they outweigh your mountainous costs) will be taxed as income, so you might be better off panning for gold.
Crypto financial services in UK
You can invest your retirement cash into bitcoin, but in the UK it is not yet possible to invest your bitcoin directly into recognized retirement savings plans such as ISAs or SIPPs. Overall the retirement planning and pension industry views it as too risky, although there are examples of some asset funds investing in bitcoin on behalf of UK pension schemes.
UK mainstream or high street banks are not particularly crypto-friendly and view crypto as extremely high risk, often telling its customers so. Barclays led the way in being the first to start providing crypto purchasing related services, but many banks declined to follow this lead. Most, however, will facilitate deposits and withdrawals from crypto exchanges.
In the UK, as almost everywhere else on the planet, the huge implications, advantages, complications being brought about by decentralized finance (DeFi) and the emergence of blockchain technology have advocates and opponents from all across the financial system. In the UK the issue is a hot topic but as yet DeFi has not been adopted.
Using crypto in UK
The UK has one of the highest numbers of Exchanges and ATMs anywhere (can you guess which city they’re located in….? Course you can.) Paying directly by bitcoin is still not widely accepted by UK retailers, although worldwide brands that do accept them include Amazon, Microsoft and Starbucks. There are plenty of online retailers that accept it and in many cases it is possible to buy vouchers with your crypto that may then be indirectly used with participating outlets.
You can gift your crypto to an individual recognised charity. However, under existing capital gains tax rules, if you gift your cryptocurrency you will have to pay tax on any increase in the value of your cryptocurrency between the date you acquired it and the date of your gifting.
Crypto regulation in UK
There is much more controlled legislation and protection on the way as the government relinquishes its light touch and also breaks away from the EU. Many EU strictures will remain, but plenty of new thinking will come into play. Light regulation has advantages but also some drawbacks. In terms of whether you get all your money back if your crypto assets are stolen or lost etc, very much depends on case by case circumstances. Your crypto assets may not be protected by organisations such as the Financial Services Compensation (FSCS) unless they meet given criteria such as what type of financial product they are and whether they’re regulated. Leading exchanges carry insurance against loss through fraud or hacking etc, so this may be high up on your initial checklist.
While direct regulation may be light, all UK crypto asset firms and cryptocurrency exchanges, advisers, investment managers, and professionals that operate on some level within the UK need to register with the Financial Conduct Authority (FCA). Most importantly they have to comply with Anti Money Laundering and Countering Financing of Terrorism (AML/CFT) reporting and customer protection obligations.