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Matt Green presents evidence to Property (Digital Assets etc) Bill Special Public Bill Committee

Posted on: January 23rd, 2025 by Hugh Dineen-Lees

Head of Blockchain and Digital Assets, Matt Green, recently submitted evidence to the House of Lords Special Public Bill Committee on the Property (Digital Assets etc) Bill. 

Matt argued that the Bill is both necessary and effective. He suggests that legislation, as opposed to common law, would provide the judiciary and policy makers with the confidence to apply property right principles to a new asset class – which is vital for consumers and financial institutions who are increasingly reliant on digital assets. Matt further argues that the Bill prescribes a negative definition which allows for things not yet created or not easily defined as capable of inclusion – providing additional flexibility to policymakers.

He notes that the Bill is a response to nervousness in the judiciary in deviating with established definitions of property, and that the wording is the door ajar to give decision makers the freedom to create new asset classes where required, without falling foul of common law principles.   

Discussing the Bill’s potential for negative or unexpected consequences, Matt warns that the wide wording of the Bill may open the floodgates and policy must therefore be carefully considered and robustly drafted. He also notes that monitoring the benefits and drawbacks of the Bill must be considered on an ad hoc basis by policy makers, to prevent any unexpected consequences.

In all, he senses that although there are more pressing matters at law, including (i) liability of decentralised entities, and liability of coders/ software developers (ii) regulation of digital assets, and the rules of engagement and (iii) the effectiveness of the Economic Crime and Corporate Transparency Act (2023), the Bill, of a version of it, must be passed to give confidence to the market and to show this jurisdiction is taking digital assets seriously.

In relation to improving the Bill, Matt argues as to why the chosen thing should be an object of personal property rights – suggesting it may be considered as heavy handed. He also notes that it may be useful to include some non-determinative wording as part of this legislation to help guide decision makers when considering property rights.

Click here to read Matt’s evidence in full.

Matt Green comments on the rise of Big Tech lawsuits in CDR Magazine

Posted on: January 7th, 2025 by Natasha Cox

Head of Blockchain and Digital Assets and Technology Disputes Matt Green comments on the rise in litigation against Big Tech companies, and explores how regulation must adapt to provide better protection and recourse for consumers.

Matt’s comments were published in CDR Magazine, 6 January 2025.

“There have been very few useful regulatory protections for consumers, although attempts have been made under financial promotions regimes.

“There is a severe lack of protections for consumers broadly when dealing with crypto assets, particularly at retail exchanges. Under recent case law, the trend is to treat crypto exchanges like banks, which themselves are governed following hundreds of years of banking law with consumer protection in place. 

“However, these laws cannot be applied to crypto exchanges given technical and operational differences. On that basis, crypto exchanges are given wide protections for how they custody and pool assets (tilting in favour of their own interests), but consumers are left without recourse where those exchanges are unwilling to help.”

For more inforamtion on our regulatory services and crypto practice, please click here

Matt Green co-authors chapter of The Founders’ Guide to UK Crypto Law

Posted on: December 16th, 2024 by Natasha Cox

Matt Green, Director and Head of Blockchain and Digital Assets at Lawrence Stephens has contributed to the launch of a new guide, The Founders’ Guide to UK Crypto Law by Lisa McClory, Digital Technologies Lead at D2 Legal Technology, an award-winning legal data consulting firm.

Matt’s co-author is Marcin Zarakowski, CEO of Token Recovery. In their chapter on ‘Tracing, Freezing and Recovery – when crypto assets are stolen‘, they explain the risks, and the legal procedures available to those affected.

The publication came about through the recognition of the urgent need for some solid and practical guidance for projects looking to start out in the Web3 space (the concept emphasising personal data ownership and the use of blockchain technology and cryptocurrencies).

The guide brings together many of the top experts in the area to deliver on this objective. It is intended as a starting point for Web3 builders and entrepreneurs in the UK. The guide acknowledges the important role that law and regulation play and seeks to assist projects in overcoming uncertainty, avoid pitfalls and generally equip the reader with the essential knowledge to empower and catalyse their ideas.

To read the guide please follow the link: The Founder’s Guide to UK.pdf – Google Drive

Matt Green to present expert evidence to House of Lords on Property (Digital Assets etc) Bill

Posted on: December 2nd, 2024 by Natasha Cox

Matt Green, Head of Blockchain and Digital Assets will be giving evidence to the House of Lords in the Property (Digital Assets etc) Bill this Thursday.

The bill is designed to ensure new asset classes aren’t prevented from being the subject of property rights if they do not fall neatly into the relevant two categories under common law.

As the Chair of techUK’s Digital Asset Working Group, Matt will be giving expert evidence on the impact of this legislation.

You can view the livestream of Matt’s appearance from 11.30am on Thursday 5 December by clicking here.

 

Matt Green comments on the Digital Assets Bill in eprivateclient

Posted on: November 18th, 2024 by Hugh Dineen-Lees

Director and Head of Blockchain and Digital Assets Matt Green comments on the introduction of the Property (Digital Assets etc) Bill, and argues that this legislation will provide greater clarity to the treatment of cryptocurrencies and digital assets under UK law.

Matt’s comments were published in eprivateclient, 15 November 2024, and can be found here.

“Property rights allow individuals to identify and demarcate ownership. In turn, being deprived of property creates a right in either damages or for that exact property to be owed. This ensures there’s greater market confidence when dealing with property, as there are clearer legal rights to ownership, control and general treatment of that property.”

“Historically property fell into two main categories – things that are tangible and exist physically or a contractual right enforced by a legal system (such as a debt claim or contractual right to goods). Digital assets (including cryptocurrencies, digital files and records, email accounts and certain in-game digital assets, domain names, even verified carbon credits) do not fall neatly into either category.”

“Use of a negative definition as proposed in the Digital Assets Bill, future proofs how property is treated, preventing the need to return to the issue for decades to come. To give an exhaustive list of what property is limits what may or may not exist going forward, so the wording is designed to ensure policymakers and the public at large are given that freedom to treat “things” as property when required, as well as the ability to sensibly divert from the rigid definition of property when required.”

“Although a welcome change for a legal system previously often unequipped to deal with such matters, enabling a “thing” to be property even where it is not tangible or creates a legal right may create inconsistencies at common law given the broad strokes definition. However the benefit of future proofing far outweighs the potential for inconsistencies and the Law Commission included guidelines as to what may constitute property under this Bill to assist decision makers.”

“As more “things” become property at a legal level, we may see the implementation of further laws, or even Judge’s decisions, which sweep up any unanswered issues. Overall, this Bill is a huge win for those dealing in digital assets, providing much needed clarity in an economy already utilising this technology at large.”

Ricardo Geada explores the ban on disposable vapes in The Times

Posted on: November 3rd, 2024 by Hugh Dineen-Lees

Director and Head of Regulatory Solutions Ricardo Geada explores the recently announced ban on single-use disposable vaping products, and argues that it may cause non-nicotine products to be caught in this regulatory dragnet.

Ricardo’s article was published in The Times, 31 October 2024, and can be found here.

Last week, the government confirmed that the sale and supply of single-use disposable vapes will be banned in England & Wales. The ban, which will come into force from next June, was inevitable, and the devolved nations of Scotland and Northern Ireland are set to follow suit.

Its stated intention is to protect children’s health and to prevent environmental damage. Some aspects are positive. For example, limiting flavours and colours that appeal to under 16-year-olds is a sound approach to minimising underage user numbers. But however well-intentioned, the ban will probably lead to an increase in both the sale and use of illicit, unregulated vaping products. Illegal vapes are much more likely to contain other harmful chemicals, which could, in turn, create serious public health issues.

Single-use vape legislation, first announced in January by the previous Conservative government, was not enacted before the July general election. The new Labour government then picked up the baton. But simply because cross-party consensus exists in principle does not automatically make legislation right in practice. Improper use could also be limited by implementing better enforcement on trading standards to prevent children under 16 having access to vapes.

Manifestly, the most effective way to prevent the unsafe use of vaping products is to create a robust regulatory framework that can be properly enforced by trading standards, unfortunately they like many other government departments lack the adequate funding and resources required. 

Nonetheless, measures must be taken to address safety and social concerns surrounding disposable vapes, such as underage use and potential fires resulting from the lithium-ion batteries used in them, as well as the adverse environmental effects of litter and the lack of sustainability in single-use products. According to Defra, five million single-use vapes were either littered or thrown into general waste every week last year.  

To the extent that it is both practical and financially feasible, companies that sell single-use vapes may have to retrofit their products in order to make them compliant with the new regulations.

But there are other consequences: the single-use ban extends to both nicotine and non-nicotine-based products. It therefore includes Cannabidiol (CBD) vapes which do not contain nicotine and are non-addictive. In fact, the reverse may apply, CBD vapes are heralded by some advocates for their potential and varied health benefits.

Although CBD vaping has been on the rise in recent years, unfortunately for companies that manufacture CBD vapes, their sector is still relatively small and does not have the financial resources of big tobacco. So, for many of these CBD companies it may prove difficult to access the necessary finance to re-engineer their existing products in order to bring them in line with the imminent regulations.

Only time will tell whether this ban will have the desired effect or if it will simply open up untested and harmful vape products on the illicit market.

Ricardo Gaeda discusses the deregulation of the cannabis market in The Times

Posted on: June 6th, 2024 by Yvonne Uzoka

Ricardo’s article was published in The Times , 6 June 2024, and can be found here.

In the biggest shake-up of federal drug policy for more than 50 years, the US Drug Enforcement Administration recently announced plans to reclassify cannabis as a less dangerous drug. The move came as a belated response to even greater liberalisation that has occurred over many years at a state level: since California became the first state to legalise cannabis for medical purposes in 1996, a further 37 US states have followed its example. After several states decriminalised cannabis in the 1970s, Colorado and Washington became the first two states to legalise the drug’s recreational use in 2012. Today, cannabis is legal for medical use in 40 states, with recreational/adult-use legal in 24 states. 

Although federal reclassification would not automatically result in national legalisation, it could result in lower tax rates for the cannabis industry and less restrictions on scientific research. In anticipation of cannabis’ wider medical usage and reduced regulation, leading to a number of listed cannabis companies’ stocks have reached new highs.

The momentum of potential investor interest will inevitably extend to the UK and Europe as companies seek to expand their cannabis operations. This will however depend upon a comparable shift in legislation and regulation.

In the EU, the legislative pendulum has already begun to swing. Cannabis has been available for recreational use in Amsterdam’s coffee shops for decades, as part of the Dutch policy of toleration.  More recently, as at 1 April 2024, Germany decriminalised personal possession and allowing the cultivation of up to three cannabis plants at home. Notably, most EU countries already permit, or are considering to allow, the medical use of cannabis or some form of cannabinoids.

However, progress on patient access in the UK continues to be painfully slow. Despite the law being changed in November 2018 to allow the prescribing of unlicensed cannabis-based products for medicinal use (CBPMs),  there are only a handful of prescriptions for CBPMs made available through the NHS, mainly used for the treatment of children with epilepsy. The vast majority of CBPM prescriptions are made through private clinics, meaning only those able to afford private medical care can obtain the medicines while their less affluent peers are denied access.

The current government has shown little appetite to confront the issue in parliament while Labour Party leader Sir Keir Starmer has repeatedly made it clear that he has “no intention” of changing the UK drug laws if his party wins the next general election.

It is therefore evident that a long road to legislative reform may lie ahead.

But if the UK is to keep pace with its global counterparts in medical cannabis regulation, it is vital that the next government reforms its approach to medicinal cannabis – not only to help those with chronic health conditions, but also to enable a viable new industry to be established without being hampered by unnecessarily restrictive regulation.

Ricardo Geada to moderate panel about novel foods at ICBC Berlin

Posted on: April 9th, 2024 by Maverick Freedlander

Director and Head of Regulatory Solutions Ricardo Geada will moderate a panel at ICBC Berlin about the implementation and enforcement of the regulation of foods with cannabinoids in the EU.

The panelists, the European Medicinal Cannabis Association’s General Secretary Sita Schubert and Founder of Cannactions Consulting Ltd Constant Ma, will discuss complex regulatory frameworks involving regional regulations and overarching EU guidelines, noting how novel foods are treated differently within the European Union.

They will highlight disparate perspectives, as well as harmonization and authorization efforts in the EU, and the difficulties in establishing novel food status for hemp food ingredients and cannabinoids, including persistent challenges related to health claims, novel cannabinoids and inappropriate marketing.

The panel, titled ‘(Not) on the plate: EU’s Dilemma with Cannabinoids and Novel Food’ will take place at 11am CET on Tuesday, 16 April at the Estrel Hotel in Berlin.

Click here to learn more and register for the conference.

Lawrence Stephens’ Regulatory Solutions team collaborate on Extracting Opportunities guide

Posted on: January 31st, 2024 by Maverick Freedlander

Lawrence Stephens’ Regulatory Solutions team is proud to have collaborated with SW4 Partners and Artemis Growth Partners on ‘Extracting Opportunities’ – a guide exploring the dynamic and rapidly evolving extract-based medical cannabis market in Europe.

This report dives into the transition from traditional cannabis forms to advanced products such as tinctures, capsules, creams, and vape cartridges, underscoring their pivotal role in broadening market appeal and delivering targeted medical benefits.

A must-read for anyone seeking opportunities in the medical cannabis sector, ‘Extracting Opportunities’ includes a comprehensive understanding of the industry landscape and discusses the prospect of extract-based medical cannabis in Europe, combining detailed analysis with engaging content to illuminate both the complexities and opportunities within this burgeoning sector.

Key discoveries:

The findings of this report attest to the significant growth of the medicinal cannabis market, driven by the evolving regulatory landscape and increasing acceptance. The report underscores the need for standardisation and high-quality inputs in pharmaceutical manufacturing, pointing out the potential for market expansion fuelled by advancements in research and clinical trials.

  • Diversification of the Market: Extract-based products are reshaping the consumer base, attracting new demographics.
  • Tailored Medical Solutions: These products are increasingly being developed to address specific medical needs, bolstering their therapeutic impact.
  • Precision in Dosing: Consistent potency is revolutionising prescribing practices, enabling more precise treatment.
  • Focus on Quality: Top-grade ingredients are necessary for the development of pharmaceutical-quality products.
  • Growth and Opportunities: The European extract market is growing rapidly, and continues to present ample opportunity for expansion.

‘Extracting Opportunities’ delivers a nuanced view of the regulatory and market trends across key European countries including Germany, the UK, Portugal, and Denmark.

Featuring pivotal companies such as Somai Pharmaceuticals, Grow Group, Valcon Medical, and Panaxia, and details their innovative approaches and contributions to the market, these insights provide a glimpse into the diverse and strategic efforts driving the growth of extract-based medical cannabis products in Europe.

For further information, and to register your interest in a free copy of the report, click here.

Registering as a crypto asset business

Posted on: January 5th, 2024 by AlexT

Whilst crypto assets are currently generally unregulated in the UK, businesses that provide certain crypto asset services are required to register with the Financial Conduct Authority (FCA) – the UK’s main financial regulatory body.

For businesses operating within the crypto industry, FCA registration represents a critical compliance milestone, and has been a requirement for cryptoasset businesses operating in the UK since 10 January 2020.

If crypto assets are unregulated, why is there a requirement for FCA registration?

On 10 January 2020, the EU’s 5th Anti-Money Laundering Directive came into effect, which was implemented in the UK by way of amendments to the existing Money Laundering Regulations (MLR).

The effect of the directive being implemented was that, amongst other things, it sought to provide a legal definition of cryptocurrency. It also detailed the types of entities and business operations involving cryptoassets that would be subject to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations akin to traditional financial institutions.

This directive also appointed the FCA as the supervisor of UK cryptoasset businesses under the MLR.

These regulations require that all businesses that conduct activities, by way of business that fall within its scope, to comply with anti-money laundering and counter-terrorist financing regulations, which includes registering with the FCA.

It is important to note, however, that there is a distinction between being ‘authorised’ by the FCA and being ‘registered’. Successful registration with the FCA as a cryptoasset business shows that the business follows an appropriate level of AML and CTF measures and safeguards,  while complying with the regulations in a manner acceptable to the FCA. It also serves as a mark of credibility in what has, at times, been an industry characterised by a number of bad actors.

As such, FCA registration can enhance the reputation of the business in the eyes of potential customers. However, consumers should be aware that being registered with the FCA does not mean that they will be protected by the Financial Services Compensation Scheme should something go wrong.

What type of crypto asset businesses fall within the scope for registration?

Currently, the following types of crypto asset business activity would fall within the scope for registration with the FCA under regulation 14A of the MLR 2017:

  • Exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets;
  • Exchanging or arranging or making arrangements with a view to the exchange of, one cryptoasset for another;
  • Operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets (e.g. Crypto ATMs) and;
  • Providing services to safeguard and/or administer cryptoassets or private cryptographic keys to hold on behalf of customers in order to hold, store and transfer cryptoassets.

Registering with the FCA

Registering with the FCA is an involved process and requires significant preparation and understanding of the regulatory requirements. Once a business has determined it falls within the scope of registration, it is then necessary for them to demonstrate that the business has in place a robust financial crime control framework which is compliant with the requirements of the MLR.

This framework should encompass a comprehensive business-wide financial crime risk assessment, tailored to your business model. Essentially, this should demonstrate how a specific business could be manipulated or be used as a conduit for financial crime.

The FCA will expect businesses to identify all risks pertaining to their business model and, as perturbing as some applicants might find this process, being upfront in identifying risks will not weaken an application. Rather, the accurate and detailed identification of risks will make it more likely that the frameworks built around a business model (and in support of a business’ application) are fit for purpose.

As part of the application the business will also be required to provide clear governance structures, customer risk assessment methodologies, policies for due diligence and suspicious activity reporting, as well as financial crime prevention training procedures. Businesses are also required to appoint a Money Laundering Reporting Officer (MLRO) with relevant knowledge and experience.

The FCA will also expect to see a business plan and forecast in support of an application. This plan should include details of the business model, key individuals and responsibilities, sources of liquidity, details of the customer journey and flow of funds.

Since the Travel Rule requirement for cryptoassets came into effect on 1 September 2023, cryptoasset businesses must demonstrate compliance with this. The requirements of the Travel Rule are contained within the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulation 2022, and require relevant businesses such as exchanges or custodian wallet providers to collect, verify and share information relating to cryptoasset transfers.

As with any application with a regulatory body, the process should not be contentious, and businesses should be aware that the FCA is not actively trying to catch them out or deny an application. A collaborative approach inevitably yields more positive feedback.

Despite this, however, the application process can be long winded and subject to delays. It is not uncommon to have different case handlers and multiple requests for information provided previously which can cause dissatisfaction with applicants.

As such, a well-prepared and presented application is inevitably more likely to succeed and so engaging with an advisor can provide valuable insights and improve the chances of a successful registration. Therefore, as the FCA itself recommends, seeking independent legal advice can be key in presenting a well prepared and informed application.

Will registering with the FCA ‘future proof’ a business?

Currently, relevant crypto asset businesses are subject to limited financial services regulation, primarily aimed at anti-money laundering and counter-terrorist financing obligations. However, subject to governmental consultations, the future regulatory landscape will become more widely applicable, and the government anticipates implementing the legislation required to develop this regulatory regime in 2024.

Businesses wishing to undertake activities involving cryptoassets by way of business will, under this new regulatory environment, be required to obtain authorisation from the FCA. This is because it is intended that certain cryptoassets will be brought within the scope of the definition of ‘specified investments’ and, therefore, the activities in relation to these cryptoassets will be regulated as opposed to the cryptoassets themselves.

It is envisaged that this regulatory regime will be specific to certain types of cryptoassets depending on the regulated activity, and there will be more precise criteria set out in secondary legislation to determine whether a cryptoasset and activity is within the regulatory scope.

As well as existing regulated activities being applicable in relation to cryptoassets, there are also additional proposed activities specific to cryptoassets which will fall within the scope of future regulation, including:

  • Safeguarding and/or administration (custody) activities;
  • Issuance, payment and exchange activities;
  • Investment and risk management activities;
  • Lending, borrowing and leverage activities and;
  • Validation and governance activities.

 As such, carrying out regulated activities involving cryptoassets by way of business will require authorisation by the FCA under part 4A of the Financial Services and Markets Act (FSMA), and this will equally apply to firms already registered with the FCA under the MLR.

At Lawrence Stephens, our team is adept at assisting diverse businesses in harnessing the potential of cryptoassets. With our bespoke legal insights, we ensure your cryptocurrency adoption journey is seamless, safeguarded, and aligned with the developing digital finance sector.

Asim Arshad and Ricardo Geada discuss crypto’s legitimate use in The Times

Posted on: November 23rd, 2023 by Maverick Freedlander

Senior Associate Asim Arshad and Director Ricardo Geada discuss the importance of crypto and its legitimate use cases, while contextualising the technology’s misuse, in The Times.

Asim and Ricardo’s article was published in The Times, 23 November 2023, and can be found here.

It is critical for regulators, officials and the public at large to differentiate between the technology of crypto assets and its potential misuse. A broad-brush approach due to the actions of a few is misleading, short-sighted, and indicates a limited understanding of the technology, thus hampering its development as a powerful force for progress and financial inclusion.

Collaboration should be key in any strategy to combat crypto’s misuse, and UK authorities should more actively engage with other regulatory bodies overseas in order to share insights and intelligence to address crypto-related crimes, while fostering the growth of legitimate crypto businesses. The misuse of crypto assets should not overshadow its broader, legitimate applications.

Contrary to common misconception, it is crucial to understand that most blockchains are inherently pseudonymous, rather than anonymous. Every transaction on public blockchain is recorded on a transparent ledger, making the transaction history traceable. This traceability can serve as a powerful tool for law enforcement. This perpetual audit trail enables authorities to trace illicit activities back to their source.

The UK’s ambition to position itself as a global hub for crypto innovation is commendable, and is one of the main reasons that growth of crypto in the UK has far outpaced the likes of the US, Germany and Japan in recent years. However, striking a balance between robust regulation and fostering innovation is crucial. Overly stringent regulations, arguably like we are seeing with the new crypto asset financial promotions regime, might stifle the growth of the sector, pushing innovators and investors towards more accommodating jurisdictions instead.

The emergence of crypto-related crimes underscores the need for a comprehensive educational push. Regulatory bodies, in conjunction with the industry itself, need to work towards educating law enforcement agencies, financial institutions, and the general public in what is a nascent and constantly developing technology.

It is also crucial to recognise that the relevance and utility of crypto assets differ across global contexts. For someone in a developed, politically stable country, the urgency or use case of crypto may not be plainly obvious. However, for individuals in countries with economic instability, hyperinflation, or restrictive financial systems, crypto offers a lifeline and can serve as an alternative financial system, providing financial inclusion and allowing people to preserve their wealth against devaluing local currencies. Dismissing crypto merely based on their irrelevance to certain regions or occasional misuse overlooks their broader potential and global impact.

Understanding and leveraging the technology of crypto assets and their underlying blockchains require a nuanced approach that recognises their potential use cases as well as the need for adequate regulation to mitigate misuse.

For more information on our Blockchain and Digital Assets services, click here

Cryptoassets and taxation

Posted on: October 11th, 2023 by AlexT

For UK traders, investors and businesses dealing with crypto assets, it is important to understand the complex tax implications for this rapidly evolving sector. For many industry participants, the line between fact and fiction regarding the taxation of crypto assets is blurred, often leading to confusion.

Having clarity and understanding on the UK’s approach to the taxation of crypto assets is therefore vital for individuals and businesses to better plan their transactions and strategy, thereby optimising their tax burden.

The tax treatment of Crypto assets in the UK

The UK’s tax authority, HMRC, recognises that there are a number of different types of crypto assets, and have adopted a taxonomy that aligns closely with the FCA’s regulatory position. However, the tax treatment of crypto assets is dependent on the nature and use of the assets in question, as opposed to their classification.

To put to rest a common misconception, HMRC does not consider the buying and selling of crypto assets to be comparable to gambling. Whether a transaction can be properly characterised as gambling will be a question of fact and will instead be considered on a case-by-case basis.

Importantly, HMRC does not consider crypto assets to be currency, and therefore treats them as a traditional asset for tax purposes. Consequentially, profits made from crypto asset activities are taxable.

What taxes are applicable?

For individuals dealing with crypto assets, the two main types of tax applicable would be Capital Gains Tax (CGT) and Income Tax.

Capital Gains Tax

Capital Gains Tax is essentially a tax on the profit made when an asset that has increased in value has been sold or disposed. It is the gain that is made which tax is applied against, rather than the whole amount that it has been sold for. For example, if you bought Bitcoin at £16,000, and later sold for £25,000, the gain on which tax would be applied would be £9,000.

Disposal of crypto assets does not just include selling the crypto asset for fiat, but also trading it for another crypto asset, spending it on goods or services, or gifting it.

There is also an annual tax-free allowance, for such instances. For the 22/23 tax year, this allowance is £12,300, and for 23/24 it is £6,000. This means that gains up to the amount of the annual allowance are not subject to any CGT.

If the profits exceed this amount, then CGT will be payable on the amount above the tax-free allowance, with the rate payable depending on your taxable income.

Income tax

In some instances, crypto assets, and activities relating to them, can be treated as income in nature; for example, payment for services with crypto assets, receiving crypto assets as employee remuneration, or earning crypto assets from mining or staking activities.

In other circumstances, trading crypto assets may also be subject to income tax, especially if the trading activity is particularly frequent and regular. Again, whether an individual’s trading activity would constitute treatment as income for taxation purposes will be highly fact dependent and assessed on a case-by-case basis.

Crypto assets received by an airdrop might also be liable for income tax if the individual has taken an action in exchange for the airdrop, for example promoting or moderating the socials for a particular project.

In relation to mining or staking taxes, if the activity is professional in nature profits may be subject to income tax under trading income rules. If the activity is more casual, it would likely be subject to income tax as miscellaneous income.

If crypto assets are mined, then the amount of tax will be based on the value of the crypto asset at the time it was mined. If the mined crypto asset is later sold and its value has increased, there may also be CGT applicable on the profit made from the increase in value.

The rate of income tax payable would be dependent on the individual’s income for the particular tax year.

It is therefore important to keep detailed records of crypto asset transactions, as it is possible to reduce the gain, and therefore the tax burden, by deducting allowable costs such as transaction fees.

Cryptoasset tax treatment and businesses

For businesses engaged in crypto asset activity, the tax treatment would depend on the nature of activities and transactions. A business involved in crypto asset activity may be liable to pay a number of different taxes such as CGT, Corporation Tax, Income Tax, VAT, and Digital Services Tax. For example, if a business’s primary function is the trading of crypto assets, then profit and losses will be subject to corporation tax at the applicable rate.

The tax treatment of businesses will depend on the particular facts of its activities, and will take into account a range of factors.

Lost crypto assets

If the private key to a crypto asset wallet is lost, HMRC does not view this as a disposal of the asset. Whilst you may have lost access to the crypto assets within the wallet, you still technically own the assets.

However, in situations where there’s no realistic chance of recovering the crypto assets, it may be possible to file a negligible value claim and seek relief for a capital loss.

Gifts

Gifting crypto assets is viewed by HMRC as a disposal, and therefore will attract a tax liability in the form of CGT. In other words, you would be subject to CGT on the difference between what you originally paid for the crypto asset and its market value at the time it was gifted.

However, there are advantageous carve-outs when it comes to gifting crypto assets to your spouse or civil partner, as transfers between spouses/civil partners are not usually subject to CGT at the time of the gift.

Rather, the recipient takes on the original cost basis and will then be liable for any CGT if they later sell or dispose of the crypto assets.

Conclusion

Taxation and crypto assets can be a complex and nuanced area, with many considerations, and failure to report crypto gains or losses could lead to penalties and interest charges on unpaid tax liabilities.

It is therefore important to note that, although the nature of cryptoassets and the decentralised framework in which they operate allows for pseudonymity, HMRC has invested significant time and effort to ensure cryptoasset tax compliance.

HMRC has been known to request customer information from centralised exchanges, and also utilises technology and analytics to analyse data and transactions which can establish connections between cryptoasset wallets and transactions and the individuals behind them. 

With this in mind, it is imperative that individuals engaged in the crypto sector seek professional advice to ensure that tax liability is calculated correctly and is optimised in line with their strategy and objectives.