Sole trader to incorporating offshore - Crypto

[hellraisero]

Hi all,

I received some allocated tokens as an airdrop from a crypto project that is not contingent on any service provided which implies no income tax here in the UK. I was given them at the inception of the project (zero value at the time) and the price has jumped a significant amount since. I also locked the tokens up for staking and I’m thinking I should go from sole trader to incorporating offshore in the UAE now because the locked staking rewards will soon become transferable 2 years later. I’m still weighing up whether I should move abroad or not but I think it’s worth setting this up and paying whatever amount necessary (to establish management and control abroad before staking rewards are released) so that they don't become taxable.

Wanted to get your advice regarding whether this would work, what I should keep in mind and potential costs? My understanding is I would need to hire directors in the UAE to manage the company.

 

[Martin Everson]

I received some allocated tokens as an airdrop from a crypto project that is not contingent on any service provided which implies no income tax here in the UK.

Ok you got given some tokens...cool.

I also locked the tokens up for staking and I’m thinking I should go from sole trader to incorporating offshore in the UAE now because the locked staking rewards will soon become transferable 2 years later.

So those staking rewards are taxable in UK as miscellaneous income on a mark to market basis. That income is subject to tax on what they were worth in sterling when you received them.

CRYPTO21150 - Cryptoassets Manual - HMRC internal manual - GOV.UK

This manual concerns the tax treatment of cryptoassets

www.gov.uk

Has your accountant told you different?

Naturally moving to UAE will give you a much preferable tax treatment than in UK .

 

[hellraisero]

Sure, but doesn’t transferability determine whether you’ve ‘received’ the staking token rewards? If you earned tokens but they're locked and aren’t transferable until 2 years later aren’t they taxed when they’re transferable?

I may be wrong but isn’t this the difference between cash basis accounting vs accrual basis? Sole traders report on a cash basis I think.

 

[Martin Everson]

Sure, but doesn’t transferability determine whether you’ve ‘received’ the staking token rewards? If you earned tokens but they're locked and aren’t transferable until 2 years later aren’t they taxed when they’re transferable?

The income has arisen and it must be declared whether distributed or not in your UK tax return. Even if you have assets in a Trust in UK the beneficiary pays tax on the income of the Trust attributed to them as it arises regardless of whether income is distributed to them or not sadly. The crypto belongs to you, as you clearly said the below, and how its held is irrelevant:

I received some allocated tokens

UK HMRC has produced guidelines on crypto Lending and Staking. In your case the periodic payment of a staking reward attributed to your allocation of tokens staked is considered income.

CRYPTO61214 - Decentralised Finance: Lending and staking: Income tax: Making a DeFi loan: Nature of the return - HMRC internal manual - GOV.UK

www.gov.uk

You would be best to seek professional tax advice in this area as HMRC guidance was only updated just over 2 weeks ago.

Naturally if you have not declared anything and HMRC is not aware of what you hold or earned then that is a different subject.

 

[aage]

You should have received them in your UK LTD and not to your self from the beginning, now you need to clean up as martin explain.