Britain has begun enforcing its tax exemptions for foreign investors purchasing cryptocurrencies through local brokers. Last month, the Rishi Sunak government announced it will be extending tax breaks for investment managers to include crypto assets.
On January 1, the United Kingdom enacted its rules exempting crypto related taxes for foreign investors who purchase the assets through local investment managers or brokers. The tax reform was first announced by the Rishi Sunak government in December as part of its plans to transform Britain into a global crypto hub.
The new ruling is applicable to the country’s corporation tax accounting period starting from the 2022/2023 tax year and subsequent years for income tax reporting. The UK now defines crypto assets under the same definition provided by the Organisation for Economic Cooperation and Development (OECD) in its ‘Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard’ paper, which was published on October 10, 2022.
The Common Reporting Standard (CRS), was developed in 2014 by the intergovernmental body in response to a request by the G20 nations to obtain financial information of taxpayers in one jurisdiction and automatically exchange that information with relevant authorities in other jurisdictions on an annual basis. This year, the OECD made amendments to the CRS to include tax reporting related to crypto assets in order to better regulate the sector. The global standard will be applied to crypto frameworks that are being developed by G20 member nations.
Since Brexit, the UK has been working on reforming its banking and financial market laws which were previously under the guidelines of the European Union. Last month, Economic Secretary to the Treasury, Andrew Griffith, unveiled a package of financial service reforms that would extend existing tax breaks offered to investors who make use of UK-based brokers, to include the crypto sector, allowing them to invest in digital assets without drawing extra tax liability.
The HM Revenue and Customs department says this exemption is an important factor in attracting global investors to the UK, while extending the rules to include cryptocurrencies will ensure foreign investments in the assets. Britain’s tax department says this will help build upon the country’s position as an investment management hub. Notably, a tax guide for resident crypto traders in the UK already exists.
In October, when addressing the parliament, Minister Andrew Griffith said that the government intends to “tentatively seize” every opportunity in the crypto space, and promised to publish a consultation paper on how the government will be using its new legislative powers to regulate cryptocurrencies under the upcoming Financial Services and Markets Bill (FSMB).
The bill would give the country’s financial markets watchdog – the Financial Conduct Authority (FCA), more regulatory powers over the crypto industry. Lawmakers are currently debating on various terms contained in the draft document, while industry players argue that some of the reforms suggested by the FCA, like new advertising limits and anti-money laundering tests (AML) for crypto service providers, could be really complex, hindering Britain’s growth in the sector.
The Treasury added that this year, it will be implementing a “sandbox” to test out new financial market infrastructures. The government is also working with MIT’s Digital Currency Initiative (DCI) to develop the digital pound, a central bank digital currency (CBDC) that will be issued by the Bank of England (BoE). Last month the treasury opened applications for a proof-of-concept CBDC wallet. In July, the HM Revenue and Customs published a public consultation paper on how it should tax decentralised finance (DeFi). The FSMB is expected to be passed by policymakers in the coming months, and will be enacted as law in the first half of this year.