UK Crypto: FCA Regulation & CGT Rules #18

Country facts

UK crypto score

Trade and store crypto

FCA registration, HMRC CGT guidance, and the UK’s crypto regulatory roadmap

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.

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Strangely, over the years,  Britain seems to have adopted a laissez-faire approach to cryptocurrency, not really taking up the cudgels or passing progressive laws for its growth and development – unlike say Switzerland or Germany. The Bank of England investigated the pros and cons of a CBDC but was not particularly taken by it. However, much is about to change with a new financial services bill. On the menu are the regulation of stablecoins and other forms of crypto assets with firmer restrictions on the advertising of products. New rules would see the Financial Conduct Authority gain greater powers to monitor the operation and advertising of crypto service companies. As with many advanced countries, the UK is reluctant to completely clamp down on crypto, seeing the underlying potential of the concept and technology. Indeed, when he was Chancellor, Rishi Sunak spoke about making the UK a crypto hub (but everybody says that…) The financial services bill seeks to establish a workable framework for regulating crypto assets and stablecoins, promoting security and safety with flexibility. Binance, one of the world’s largest cryptocurrency exchanges, remains banned from operating in the UK, as it lacked the required regulatory permission. The FTX debacle has spurred many countries into acting, although it is fair to say the UK had such proposals under consideration before the collapse.

Whilst 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 restriction 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.

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How to buy bitcoin in UK

There are several ways to buy Bitcoin in the UK:

• Online exchanges: The most common and convenient way to buy Bitcoin in the UK is through an online exchange. There are many exchanges available, including popular ones like eToro, Revolut, Gemini, Coinpass or Bitpanda. To use an exchange, you will need to create an account, verify your identity, and deposit funds into your account. From there, you can purchase Bitcoin directly on the exchange.
• Bitcoin ATMs: Another option is to purchase Bitcoin through a Bitcoin ATM. These ATMs allow you to purchase Bitcoin using cash or a debit card. Simply find a Bitcoin ATM near you, deposit cash or swipe your debit card, and receive your Bitcoin.
• Direct from a person: If you are adventurous, and know what you are doing, you can also purchase Bitcoin directly from another person who already owns some. This is known as a peer-to-peer (P2P) transaction. To do this, you will need to find someone who is willing to sell Bitcoin to you and agree on a price.
• Stockbrokers and investment platforms: Some stockbrokers and investment platforms now offer the option to buy Bitcoin and other cryptocurrencies. This is a good option if you already have an account with a broker and are familiar with their platform.

Regardless of which method you choose, it’s important to thoroughly research the exchange or platform you are using to ensure it is reputable and secure. Additionally, it’s a good idea to make sure you have a secure and private wallet to store your Bitcoin in after you purchase it.

It is important to buy Bitcoin from a reputable and regulated exchange to ensure the security of your funds and the integrity of the marketplace. Using an exchange that is approved by a reputable regulatory body, such as the Financial Conduct Authority (FCA) in the UK, provides a level of protection and oversight that is not available when using an unregulated exchange.

Binance was famously banned in the UK. As the world’s biggest crypto exchange, this was a strong signal sent by the UK government on how they want to make things differently.

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What are the reasons you should only buy bitcoin and cryptocurrency from FDA approved institutions in the UK?

Buying bitcoin from a regulated FDA exchanges is a first solid step into your crypto journey in UK. You can find the updated list here:

https://register.fca.org.uk/s/search?predefined=CA

When you buy Bitcoin from an FDA approved exchange in the UK, you can be confident that the exchange is following best practices for customer protection and security, including measures such as keeping customer funds separate from company funds and implementing robust security systems to protect against theft and hacking.

Additionally, regulated exchanges are typically required to comply with anti-money laundering (AML) and know your customer (KYC) regulations, which helps to prevent fraud and financial crime. This provides an additional layer of protection for you and helps to maintain the integrity of the financial system as a whole.

In summary, buying Bitcoin from an FDA approved exchange in the UK provides a level of security and protection that is not available from unregulated exchanges. It is a wise decision for anyone looking to invest in cryptocurrencies.

Skip the wait. Buy a licensed company.

On the list of FDA approved, some of the best options and easy to start with are eToro and Revolut. But as non-custodial exchanges, you don’t own your own crypto as of now on any of them. Not your keys, not your bitcoin as they say.

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Bitcoin trading and law in the UK

Legal – 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.

British crypto taxation

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.

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Tax relief

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) 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 the 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.

Bitcoin financial services in the UK

Fin services – retirement planning

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 view it as too risky, although there are examples of some asset funds investing in bitcoin on behalf of UK pension schemes.

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Fin services – banking

UK mainstream or high street banks are not particularly crypto-friendly and view crypto as extremely high risk, often telling their customers so. Barclays led the way in being the first to start providing crypto-related services, but many banks declined to follow this lead. Most, however, will facilitate deposits and withdrawals from crypto exchanges.

Fin Services – Defi

In the UK, as almost everywhere else on the planet, the huge implications, advantages, and 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.

Bitcoin in the UK

Spending Bitcoin

Gifting Bitcoin

You can gift your crypto to a recognized 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 Exchanges

Where to buy bitcoin in the UK?

NAME			RATING	FOUNDED DATE	DEPOSIT METHOD	BASED IN	REVIEW	SIGN UP
#1		Coinbase	4.0	2012	Credit Card Bank Transfer	USA	Coincub Review	Register Now
#2		Revolut	4.0	2015	Credit Card Bank Transfer	London, UK	Coincub Review	Register Now
#3		eToro	3.6	2007	Credit/Debit Card PayPal Bank Transfer Wire Transfer	Israel	Coincub Review	Register Now

#1 Coinbase 4.0

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FOUNDED DATE2012

DEPOSIT METHOD Credit Card Bank Transfer

BASED INUSA

Review

#2 Revolut 4.0

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FOUNDED DATE2015

DEPOSIT METHOD Credit Card Bank Transfer

BASED INLondon, UK

Review

#3 eToro 3.6

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FOUNDED DATE2007

DEPOSIT METHOD Credit/Debit Card PayPal Bank Transfer Wire Transfer

BASED INIsrael

Review

Crypto regulation in UK

Security

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.

Transparency

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.

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Taxes in UK

*Annual tax-free allowance for capital gains is £12,300

**Includes all income including but not limited to staking, mining, interest, rewards, airdrops, liquidity pool rewards as well as gains on trading determined to be a financial trade

https://www.gov.uk/income-tax-rates

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