With success comes attention, and with notice comes the taxman. Bitcoin’s crazy great jump in price over 2017 has taken the world’s most popular cryptocurrency from a curiosity into a begrudgingly valued asset by governments. Capital gains is the tool of most revenue collectors when it comes to crypto, including the United Kingdom (UK). What if investing in bitcoin was really just rank gambling? According to British tax law, that would mean such gains would go untaxed. It’s not as impossible as it might first read.
UK Bitcoiners’ Tax to Zero?
It was a rather mild effort as statements go. A spokesperson from Her Majesty’s Revenue and Customs (HMRC) commented: “We don’t normally tax betting and gambling because it is usually not classed as trading income,” he said. One could almost hear bitcoiners’ ears perking up all over England. “But there may be circumstances where factors such as the degree of skill and organisation would make the activity more likely to be taxable as trading income. Each case will depend on its own facts.”
Consumer affairs editor Katie Morley reported the statement as being a “tax loophole which reduces Bitcoin investors’ gains to zero” and could be “exploited by people filling in their returns for this tax year,” which might cost HMRC millions.
Tax men around the globe are expecting coffers to fatten after 2017’s bitcoin gains, and much press has been given to their collection abilities or lack thereof. Studies have shown how few filings over recent years were due to nascent technology and lack of government minders’ understanding. Public comments by politicians hardly helped matters. But now the technology is taken seriously as a digital asset, and most see it clearly as a capital gain.
There is no denying bitcoin’s year. Thousands of percent price increases have brought tax collectors out in droves. In the United Kingdom, however, there appears to be a loophole some crypto enthusiasts might well claim: gambling. If money is made from gambling, a lark, it is not taxed. At one point in 2017, bitcoin’s price neared 20,000 USD.
Outdated Code, Triggers
Ms. Morley quotes a tax specialist as being agnostic on the question of whether bitcoiners necessarily qualify as gamblers. Perhaps investors who dabbled in relatively smaller amounts might able to claim the loophole. Otherwise, they’re subject to taxation anywhere from 18 percent to 28 percent.
Still another tax account believes claiming to be a gambler by investing in bitcoin would be a tough sell, but it might be easier to suggest gambling gains with altcoins, lesser-known “bets” as it were. “It is difficult to see how the profits on mainstream cryptocurrencies [such as Bitcoin] could be seen as gambling profits,” he warns. “There may conceivably be some cryptocurrencies in which the markets are random, and therefore the profits could be treated as gambling.”
In recent months UK regulators have chirped about better formulating cryptocurrency regulations, no doubt driven by the asset class’ heady year. The last time the topic was formally legislated with regard to UK tax was back in 2014. With its publication, it was largely seen as a boon for the ecosystem, as it seemed the government saw bitcoin and crypto as less of a revenue enhancement mechanism than a new technology struggling to find its place.
Bitcoin remains an asset under UK tax law, and as such an allowance of the first £11,100 is not taxed. If gains do not amount to that number, bitcoiners are safe. And if it’s a case of individuals holding bitcoin appreciation beyond that amount, capital gains are only triggered at the time of profit taking, experts agree.
What is your tax strategy? Let us know in the comments section below.
Images courtesy of Pixabay, HMRC.
Author: C. Edward Kelso