Taxman “rubbing its hands with glee” over bitcoin
Interest in bitcoin has continued to boom despite concerns that the bubble could burst at any moment, and regulators are struggling to keep up.
Today, news emerged that South Korea was considering taxing capital gains from cryptocurrency trading, prompting questions of how bitcoin could be taxed in the UK.
“Any moves to introduce CGT [capital gains tax] on cryptocurrencies would presumably have to remain consistent with existing rules on taxation – at the moment, currencies are CGT exempt, investments and commodities are not, so applying the current regulatory regime would oblige the authorities to define BTC as a commodity or an investment, not a currency," said Russ Mould, AJ Bell investment director.
Mould said bitcoin is still too small to be much of a concern to the Bank of England from a financial stability perspective, but tax "would be one way to take heat out of the market if the regulator felt the need to do so".
While Mould said no such tax moves are likely at the moment, he added that this could raise issues for some of bitcoin's main selling points: its anonymity and its status of being "outside the system".
George Bull, a senior tax partner at RSM, said HM Revenue & Customs must be "rubbing its hands with glee" as bitcoin's value soars, and sooner or later the taxman will come to collect its share of gains.
Bull said HMRC will use existing tax law to tax the profits of cryptocurrency depending on how it was acquired. "But if the bitcoin bubble bursts and owners incur huge losses, don’t bank on HMRC coming to the rescue with tax relief for those losses. Instead, we may well see HMRC contending that the transactions were so speculative that they were more like betting or gambling with the result that no tax relief will be available for losses," he said.
Meanwhile, Germany's finance ministry said it was "monitoring" the impact of cryptocurrencies on markets, while Australia's central bank governor Philip Lowe warned of "speculative mania" around bitcoin.