HMRC is issuing nudge letters to taxpayers that it has identified as holding cryptoassets, better known as cryptocurrency. The letter invites recipients to determine whether they have made disposals of such assets in 2020/21 or earlier tax years realising gains in excess of the annual exempt amount (currently £12,300) and sets out what to do if they have.

HMRC has advised ICAEW that, although the letters are not being sent out to non-UK domiciled individuals, this is not an indication that its views on the situs tests for cryptoassets has changed.

In its cryptoassets manual at CRYPTO22600, HMRC considers that the situs of a cryptoasset for capital gains tax (CGT) and inheritance tax (IHT) purposes depends on whether it is simply a digital representation of an underlying asset.

If it is, then the location of the underlying asset will determine the location of the cryptoasset.

Where the cryptoasset is distinct from any underlying asset, then HMRC’s view is that none of the statutory rules in the Taxation of Chargeable Gains Act 1992 apply. Instead, it is HMRC’s view that:

• exchange tokens have an economic value as they can be “turned to account” - for example, exchanging them for goods, services, flat currency or other tokens;
• exchange tokens are a new type of intangible asset (different to other types of intangible assets, such as shares or debentures); and
• the only identifiable party to consider is the beneficial owner of the exchange token, such that the location of the cryptoasset will be determined by the residency of the beneficial owner.

HMRC’s conclusion, therefore, is that a UK resident individual will always need to pay tax on the disposal of such assets if they are the beneficial owner, regardless of their place of domicile.

• Read a copy of the letter in full.