Theresa Mills
Associate Solicitor
Make an enquiry
Date Published:25 Apr 2019 Last Updated:21 Sep 2021

Taxation of digital assets

Wills, Trusts & Probate

Digital currencies (or cryptocurrencies) such as Bitcoin are becoming more prevalent in modern society, but there is still a lot of confusion and uncertainty about these types of assets and where and how they should be reported for tax purposes.

HMRC Guidance on the issue for individuals acts as a reminder that whist the cryptocurrencies are not currency in the normal sense they are assets with a value and therefore subject to tax dependant upon how and for what values they are acquired and disposed of.

Income Tax (and National Insurance) will be payable if the units/tokens are earned through employment for example. If you are in receipt of cryptocurrencies as a result of your employment it is important to check whether the cryptocurrency is a “Readily Convertible Asset” ( easy to convert to actual currency) as whether the burden of reporting these falls on your employer through the PAYE system or you via Self Assessment will depend on this.

Mining of cryptocurrencies by individuals (not amounting to a trade) will also be subject to Income Tax and needs to be disclosed via Self Assessment. However, airdrops (gifted / promotional units/tokens) will not, in certain circumstances, be
subject Income Tax.

As with other assets Capital Gains Tax can apply to the disposal of cryptocurrencies for a gain. Cryptocurrencies of a singular type are pooled for the purpose of acquisition value.

It is important to note that Self Assessment returns require reporting to be in pounds sterling therefore cryptocurrencies need to be valued and reported accordingly. HMRC recommend keeping a record of your conversion methodology and applying a
consistent approach.

HMRC guidance also confirms that cryptocurrencies are assets for the purpose of a persons estate on death and are therefore subject to inheritance tax in the usual way.

We also recommend that you do not overlook digital assets when considering your Will instructions and we can assist you in leaving clear instructions for the executors of your estate.

If you require any assistance with Tax or Estate Planning please contact the Wills, Trusts & Probate Department on 01202 525333.