As Bitcoin prices continue to rise, many are predicting an increase in the number of high value transactions that will accept Bitcoin and other cryptocurrency.
But what are the tax consequences of using Bitcoin to buy or sell assets and should you consider it for your next UK property purchase or business investment?
HM Revenue & Customs has not issued clear guidance on the capital gains tax (CGT) treatment of Bitcoin and it is not clear whether Bitcoin is treated as foreign currency or a Bitcoin wallet is treated as a bank account. However, where you use your Bitcoin to buy shares, real estate or any other asset, HMRC may seek to argue that you are liable to CGT on any increase in the value of your Bitcoin between the date you acquired it and the date you make your purchase. A deferral of any CGT due may be available if you hold Bitcoin for the purposes of your business and use it to acquire business assets - for example, if you acquire both Bitcoin and property as part of a property development business. Otherwise, a potential CGT liability should be factored into your financial planning for the purchase.
Stamp duty (on share purchases) or SDLT (on property purchases) will be payable just as it would be on a cash purchase. Your liability will usually be calculated based on the Bitcoin exchange rate as at the date of completion of the transaction. As the buyer, you will need to pay any stamp duty or SDLT in sterling within the statutory time period - usually 30 days from the date of completion of the transaction - as HMRC does not accept payment in Bitcoin.
As a seller, if you accept Bitcoin for a sale of shares, real estate or other chargeable assets, you will be subject to CGT on any gain, just as you would if you took payment in cash. Your CGT liability will be calculated in sterling and you will need to consider the sterling value of your Bitcoin at the date of the transaction. You may also be subject to CGT if a further gain (or loss) arises as a result of fluctuations in value if you continue to hold your Bitcoin and later dispose of it.
In the UK, as in Europe, no VAT is payable on Bitcoin itself. However, if you are registered for VAT and take payment in Bitcoin for your VATable supplies, you will still need to account to HMRC for any VAT in sterling at the end of the VAT period following the sale.
Where does that leave you if you are about to transact in Bitcoin? Although transacting in Bitcoin should leave you no worse off from a tax perspective, you will need to ensure you have sufficient cash flow to pay any CGT, stamp duty, SDLT or VAT liability when it falls due and liquidate further Bitcoin if necessary. There will also be other practical obstacles to overcome. For example, you will need to consider who should bear the risk of any fluctuations in the value of Bitcoin if there is a gap between exchanging contracts and completion. Lawyers, accountants and financial advisers involved in the transaction will also need to be comfortable with the use of Bitcoin from their own regulatory Know Your Client and Anti-Money Laundering perspectives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
