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Crypto Regulation Around the World: UK

23 May 2022
in Articles, Opinion
Reading Time: 8 mins read
105 6
Home Articles

Contents

Toggle
  • Is cryptocurrency legal in the United Kingdom?
  • Are crypto exchanges legal in the United Kingdom?
  • What are the crypto ad guidelines in the United Kingdom?
  • Are cryptocurrencies taxed in the United Kingdom?
    • What are the allowable costs in calculating capital gains tax?
  •  In Conclusion,

Crypto adoption in the United Kingdom has skyrocketed in recent years. Regulations governing the use of cryptocurrency and the organizations that provide these services have become more stringent. The rules governing crypto advertisements in the United Kingdom have also evolved.

As of 2020, approximately two million adults in the United Kingdom owned cryptocurrencies, with the number of people owning cryptocurrencies increasing by 2.35 percent throughout that time frame.

Approximately two-thirds of ad-influenced cryptocurrency owners were misinformed about regulatory protection. 

According to the research, many who purchased cryptocurrencies in the United Kingdom did so under the false impression that these virtual currencies were regulated. This is one of the reasons why the Financial Conduct Authority (FCA) and other regulators have tightened restrictions on the type of advertising that crypto platforms can conduct in the region.

This article examines crypto regulation in the United Kingdom; the laws surrounding it; what corporations must do before offering crypto services in the country; and advertisement regulation.

Is cryptocurrency legal in the United Kingdom?

In the United Kingdom, cryptocurrency is not regarded as legal tender, meaning it lacks legal backing like the traditional fiat currency, pounds sterling. Residents in the United Kingdom can buy and sell cryptocurrencies.

The FCA banned the “sale of crypto derivatives to retail consumers in the United Kingdom” in 2021. The Financial Conduct Authority specifically prohibited the sale of derivatives and exchange-traded notes (ETNs) that reference certain types of crypto assets to retail consumers.”

The previously mentioned ban does not apply to institutional organizations because they are allowed to acquire “riskier financial products than the general populace.” The ban only applies to retail investors.

Are crypto exchanges legal in the United Kingdom?

The United Kingdom has in recent times tightened restrictions on the crypto exchanges that are permitted to operate in the region. Binance is not legal in the United Kingdom at the time of writing. Before an exchange can provide cryptocurrency services to residents, it must first obtain a license.

Crypto exchanges are only considered legitimate if they are registered with the Financial Conduct Authority (FCA).

The United Kingdom is no longer a part of the European Union, which means that some of the EU’s cryptocurrency regulations may no longer apply in the UK. The United Kingdom opted to adopt some of the guidelines in the Fifth Anti-Money Laundering Directive (5AMLD) and  Sixth Anti-Money Laundering Directive (6AMLD) into their national law at the time of their exit from the EU.

At the moment, any cryptocurrency exchange that wants to provide its services to residents of the United Kingdom must obtain a license from the Financial Conduct Authority (FCA). Typically, they are also required to design their system to include functionalities that the FCA specifies. For example, the United Kingdom government ensures that fraudulent individuals do not utilize cryptocurrencies to launder money or commit other crimes. This is why they demand that all exchanges operating in the country strictly adhere to the FCA’s anti-money laundering requirements, as failure to do so will result in sanctions.

What are the crypto ad guidelines in the United Kingdom?

The United Kingdom has taken a serious approach to regulate the advertisements used by cryptocurrency companies to promote their products or services.

The Advertising Standards Authority (ASA) of the United Kingdom issued a deadline of May 2, 2022, to crypto companies for them to ensure that their crypto advertisements complied with the standards.

The ASA believes that crypto adverts have an impact on the number of people who buy crypto assets, and the ads needed to be crafted in such a way that residents were not duped into buying crypto.

Crypto companies, such as Coinbase, have been known to advertise their services in different parts of the country, such as subways.

In March 2022, ASA sent a notice to more than fifty crypto companies, informing them that they needed to modify their crypto advertisements to underline the authorities’ standards. Among the companies that got notices were eToro, Crypto.com, and Coinbase. The FCA will penalize cryptocurrency exchanges that fail to meet the ad criteria.

Part of the guidelines indicates that the crypto companies must disclose in their advertisements that cryptocurrencies are not regulated and list the dangers associated with participating.

According to reports, the ASA stated, “This is a ‘red alert’ priority issue for us and we’ve recently banned several crypto ads for misleading consumers and being socially irresponsible.”

Are cryptocurrencies taxed in the United Kingdom?

Her Majesty’s Revenue and Customs (HMRC) is a UK government agency responsible for collecting taxes, disbursing different types of government support, issuing national insurance numbers, and so on.

As the United Kingdom’s tax collection body, it is vital to the country’s crypto taxation. 

The HMRC published the cryptoassets manual in 2021, detailing the tax treatment of cryptocurrencies. Because the agency does not consider crypto assets to be conventional investments, taxation is contingent on the circumstances surrounding them. The guidebook details the paperwork that a crypto user must have, as well as the taxes that they must pay.

The capital gains tax, which is paid when an asset is sold, is a regular tax that people pay with regard to cryptocurrencies. A capital gains tax is levied when an individual’s gains exceed the tax-free allowance. 

Typically, CGT, or capital gains tax, is calculated based on the gains made by the individual from selling the token, which is the difference between the retail price when it was purchased and the amount received for its sale after a certain length of time elapses. If there was a loss, the individual is not required to pay CGT. They are also not permitted to deduct losses from profits obtained from other asset classes. Losses can only be used to offset gains if they are in the same class of assets, and the individual must obtain approval from HMRC before doing so. 

Individuals who have paid income tax on the value of some tokens are not required to pay CGT on the same value to prevent double taxation.

HMRC may impose a capital gains tax when an individual engages in certain activities. 

To begin with, if a crypto enthusiast in the UK sells their digital assets, whether cryptocurrencies or NFTs, they may be subject to this form of tax. 

Second, a capital gains tax may be levied if tokens are exchanged for another type of crypto asset. If they do not belong to the same class, the user may be required to pay this form of tax.  

When a UK resident decides to pay for products or services using cryptocurrencies, they may be required to notify the government and pay a capital gains tax on the transaction.

In the case that the individual gives away tokens to others, they may be subject to taxation. There may be some exceptions if it is a gift to a spouse or civil partner.

Let’s assume an individual decides to donate crypto assets to charitable causes. They may be expected to pay CGT on them.

As always, this is not legal or financial advice, and you should consult with an expert about your crypto tax requirements.

What are the allowable costs in calculating capital gains tax?

Some allowable costs can be deducted when calculating the crypto capital gains tax.

An allowable cost is an amount spent on advertising the crypto asset by either the buyer or seller.

Second, transaction fees, such as gas fees, paid for carrying out the transaction can be deducted when calculating CGT.

Third, if a contract was required to ensure that the transaction occurred and money was paid, the cost can be deducted from the CGT.

If the individual has paid someone to value or make a valuation for the transaction to be completed, the cost can be deducted when calculating CGT. Another allowable cost is a proportion of the pooled cost that accrues to the tokens.

Though certain costs are allowable, some are not, and they cannot be deducted during the calculation.

  • Mining equipment and costs are not allowable for the calculation of CGT.
  •  Individuals are not permitted to deduct costs that have already been deducted from profits while calculating their income tax.

 In Conclusion,

  • Crypto usage is not prohibited in the United Kingdom.
  • Retail investors are not permitted to purchase some financial instruments linked to cryptocurrencies.
  • Certain guidelines must be followed when advertising crypto products or services.
  • Cryptocurrency exchanges must obtain FCA approval to operate in the UK, 
  • Some crypto transactions require individuals to pay capital gains tax.

 

If you would like to read more articles like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, and Instagram.

 

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