UK non-dom taxation with Cryptocurrency

[Giuseppe Rossi]

Hello everybody,

I live in the UK and benefit of non-dom taxation.

All earnings generated outside the UK are not taxed.

And so far everything is ok.

I have read that, however, being the crypro "intangible", there are possibilities that you will be taxed in UK.

I do not understand if they are the classic absurd things that some accountants say or if there is to be careful.

I have had crypto for years (long before moving to the UK), which I have never sold.

Soon I would like to sell a small part. And I thought that making cashout either on a broker outside the UK (Kraken in USA), or in a bank outside the UK (SebaBank in CH) there would be no problems.

Indeed, cashout made OUTSIDE UK, and the money will NEVER enter the UK.

How to deal with these rumors that cryptocurrencies are instead considered as if they were with me in the UK?

Thanks!

 

[khinkali]

How to deal with these rumors that cryptocurrencies are instead considered as if they were with me in the UK?

It might be best to point them to the information in HMRC's website.

HMRC.gov.uk The location of exchange tokens

This section is primarily for non-domiciled individuals calculating their tax liability on the remittance basis and for related Inheritance Tax purposes.

Currently, the tokens are treated as being where you are.

 

[Giuseppe Rossi]

But what if the tokens are kept by a broker or a bank outside the UK?

 

[khinkali]

Sorry @Giuseppe Rossi i didn't add the link correctly in the previous post.

https://www.gov.uk/government/publi...ryptoassets-for-individuals#which-taxes-apply
If they are your tokens while you are in the UK then I can't see how it makes a difference. If you're arguing that they are not your tokens, but just some balance on an exchange's server in Seychelles or wherever, then I'll be interested to see the end result.

I think HMRC's decision is a bit crazy, but that goes for most countries. Portugal and Germany seem to have a nice treatment for long term crypto gains. No use to someone like me who moves in and out or a coin within the hour.

 

[Awblackhat]

If the amount is small then you may be covered by Capital Gains specially if married/have partner as you can also gift to them which would double it.

Unfortunately moving between coins is considered a taxable event in UK or you could move it to stablecoins for example and slowly release money within your CGT allowance.

What is your approach - khinkall? I'm currently in learning mode - I do switch between coins e.g. ETH to target coin but largely are longer term investments

Paul

 

[Giuseppe Rossi]

The amount it’s big, not small.

If they are your tokens while you are in the UK then I can't see how it makes a difference. If you're arguing that they are not your tokens, but just some balance on an exchange's server in Seychelles or wherever, then I'll be interested to see the end result.

1. I bought my crypto years before moving to the UK.
2. I don't know how technical you are in the crypto world, but there is also the phrase “not your private key, not your token”. in fact, it is always better to keep your crypto in hard wallet, because it means that you have them. If, on the other hand, you have deposited them on an exange (for example Kraken is in the USA), by definition you no longer own your crypto, but the exchange owns them (no longer you). if they want, they could steal them all.

So this is not clear to me.

1. As long as your cryptocurrencies are in your (hard/cold) wallet, no one can prove that you hold them. the wallet can also be a "brainwallet", and exist only in your memory.

2. when I cashout (and here is the problem) the coins will no longer be on my wallet, but on the wallet of an exchange OUTSIDE UK. So, this whole problem is because whoever made this proposal doesn't understand anything about crypto?

3. but the real question is, is there a way to get around ? by making the crypto to a company outside the UK?


because it is money that I will NEVER bring to the UK, I will never spend it in the UK, it is crypto purchased before moving to the UK, and it will be outside the UK (because the cashout will take place in a broker based in Switzerland), and since I am not domiciled resident, I don't understand why I have to pay a huge amount of tax for this thing.

So I would like to understand if there is a smart solution.

 

[khinkali]

I'm not arguing @Giuseppe Rossi I just linked to the advice from HMRC. I wrote above I that think it's a bit crazy. HMRC decided to get involved in crypto profits and losses to claim against capital gains. They might regret that one day.

I understand your argument and I know what a wallet is. I'm not sure that a judge will really agree with the "Haha HMRC, I've just moved my coins from my wallet in the UK to Switzerland, now I can cash them in and keep the previous gains tax free!" argument.

Maybe I misunderstood and the coins are not in your wallet (whether a ledger or on paper or in your brain) and never were while you were in the UK. So you never had any UK gains. I doubt HMRC is as nuanced about that as you think they ought to be. I'm not tax lawyer and my view is the same as before, "I'll be interested to see the end result".

I don't want to test this kind of thing. It's because of my previous Kafkaesque experience of HMRC that I am no longer UK tax resident. The same situation was brewing in Thailand when I left there. It seemed easier to go somewhere more crypto friendly. I am not sure if I will need to move again.

What is your approach - khinkall?

Calculate a current estimate of each coin's value, based on information from multiple exchanges and coin pairs. Buy on some exchange where the price of some coin is lower than my estimate, then sell when higher. Of course I can (and often do) lose when the coin's market value changed by more than my discount/premium so it's volatile. But we're getting a bit off topic...

 

[Giuseppe Rossi]

I'm not arguing

i was not arguing with you . I'm sorry if I seemed grumpy with you!

it was just a "nervous" message against HMRC.

I would like to understand if there are experts who can give me advice.


In any case, the problem arises only in the case of cashout, right?

They may not know that I have had a ledger with coins on it for years.

 

[khinkali]

You don't seem grumpy. Maybe frustrated? I know that feeling.

Yes you shouldn't need to worry unless you cashout (there are rules about airdrops and forks) but keep in mind that crypto->crypto counts as cashing out and back in. That is obviously stupid, but it's what they do.

They may not know

There are certainly members here who know about handling things discretely. Perhaps that is discussed in the Mentor Group?

 

[Giuseppe Rossi]

You don't seem grumpy. Maybe frustrated? I know that feeling.

Yes you shouldn't need to worry unless you cashout (there are rules about airdrops and forks) but keep in mind that crypto->crypto counts as cashing out and back in. That is obviously stupid, but it's what they do.


There are certainly members here who know about handling things discretely. Perhaps that is discussed in the Mentor Group?

I ask immediately.

regarding the "cashout" between 2 tokens, it is true that the law says this, but in reality, if through my ledger, I use uniswap to convert one token for another, everything remains on the blockchain, no steps are carried out on an exchange, and it's all anonymous.

so how should they tax me (unless of my own volition I tell them)?

 

[khinkali]

@Giuseppe Rossi I doubt they can, but then I'm more focused on becoming transparent than hiding.

They won't see your uniswap transaction and I'd be surprised if small time folk ever get caught. But once you buy property, cars, jets, yachts, paintings, etc and they ask you where the money came from, you could have a problem. It's not the hiding that I'd worry about, it's about proving your source of wealth later if needed.

If you're a corrupt politician you can buy Manchester City Football Club for £81.6 million of dodgy money, but then I guess you'd have friends in high places.

 

[Giuseppe Rossi]

@Giuseppe Rossi I doubt they can, but then I'm more focused on becoming transparent than hiding.

They won't see your uniswap transaction and I'd be surprised if small time folk ever get caught. But once you buy property, cars, jets, yachts, paintings, etc and they ask you where the money came from, you could have a problem. It's not the hiding that I'd worry about, it's about proving your source of wealth later if needed.

If you're a corrupt politician you can buy Manchester City Football Club for £81.6 million of dodgy money, but then I guess you'd have friends in high places.

I will definitely NEVER take money to the UK. Because precisely I'm not dom.

I don't bring them back to the UK in "shady ways".

And I chose UK because I could keep my business outside the UK (I receive dividends from companies outside the UK), without bringing money to the UK.

All in the sunlight. Because I also wanted a transparent structure.

I don't want to take them to the UK. is what makes me angry.

Because they want me to pay taxes on money I don't bring to the UK (like non dom).

 

[babaorum]

The situs of exchange tokens is that of their owner. Doesn't matter if they're held on a foreign exchange. Exchange tokens are like bitcoin or ethereum.
However HMRC makes a difference between exchange tokens, utility tokens and security token. The situs of the last two has not been decided in the last guidance and so you might not be taxed on gains realized by selling those if kept outside the UK and not converted into exchange tokens.

 

[khinkali]

That's a good point @babaorum In one way it makes sense if they decide that AMZN tokens will be treated like AMZN shares or other derivatives, when backed by AMZN shares held by CM-Equity or similar. But this is going to be a real pain if you're trading hundreds of assets per day and it isn't always clear what is a security, exchange token or utility.

Perhaps an offshore crypto fund would make sense for a UK non dom? If the fund manager holds the private keys and exchange accounts offshore, then I guess the exchange tokens aren't in the UK and maybe the non dom would be untaxed on any gains?

 

[babaorum]

That's a good point @babaorum In one way it makes sense if they decide that AMZN tokens will be treated like AMZN shares or other derivatives, when backed by AMZN shares held by CM-Equity or similar. But this is going to be a real pain if you're trading hundreds of assets per day and it isn't always clear what is a security, exchange token or utility.

Perhaps an offshore crypto fund would make sense for a UK non dom? If the fund manager holds the private keys and exchange accounts offshore, then I guess the exchange tokens aren't in the UK and maybe the non dom would be untaxed on any gains?

Exchange tokens are definitely taxable in the UK, no matter who holds the private keys. At least that's the opinion of all the tax professionals I spoke too. That being said, this is just the interpretation that HMRC makes of existing laws considering the situs of intangible assets and it has not been challenged in court yet.

 

[khinkali]

@babaorum I mean if an offshore managed fund holds the keys and accounts. The UK resident non dom owns a share in the fund. If the fund is trading between different assets with some frequency, can HMRC claim that one client of the fund owns each of those collective assets wherever he or she lives?

I admit I get confused at this point. Closed or open fund. Reporting or non reporting fund. I imagine there is some circumstance where ownership in part of the collective fund stops being a UK taxable asset.

 

[babaorum]

@babaorum I mean if an offshore managed fund holds the keys and accounts. The UK resident non dom owns a share in the fund. If the fund is trading between different assets with some frequency, can HMRC claim that one client of the fund owns each of those collective assets wherever he or she lives?

I admit I get confused at this point. Closed or open fund. Reporting or non reporting fund. I imagine there is some circumstance where ownership in part of the collective fund stops being a UK taxable asset.

Yes, you are right if it's a fund, you aren't taxed as you hold shares of the fund. I guess that's what would happen if you held shares of $GBTC. I initially thought you meant exchange and not fund.

 

[khinkali]

@babaorum you were right I did mean exchange before.

I'm just thinking about whether UK (and similar) resident non doms might be a good market for a small crypto fund. Not being able to deduct losses from CGT, but enjoying tax free trading profits as well as any net tax free gains in the market.

 

[babaorum]

That already exists, check out the ticker GBTC. As it's not an etf, it often trades at a significant premium and sometimes discount so there is that risk to pay attention to as well.