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Cryptocurrency legality status in the UK
While cryptocurrencies are banned in several countries such as China, they are completely legal in the UK. The UK government takes a regulatory approach to set the bar and inform people about the risks to help protect them from losses.
While the term ‘cryptocurrency’ contains the word ‘currency’ in it, it might not be seen as one in the United Kingdom. Cryptocurrency is classified by HMRC as digital assets or ‘crypto assets’, subject to capital gains or income tax depending on the case, and is NOT qualified as official currencies like the sterling pound.
Although cryptocurrency exchanges are legal in the UK, there are certain requirements that need to be fulfilled.
The UK had previously transposed the cryptocurrency regulation requirements set out in the 5th and 6th Anti-money Laundering Directives into domestic law. In accordance with that directives, from January 2021, all UK crypto-asset firms follow one of the conditions below have had to register with the Financial Conduct Authority (FCA):
- Have a presence/market product in the UK
- Provide services to UK resident clients
More importantly, these groups must comply with AML/Combating the Financing of Terrorism (CFT) reporting and customer protection obligations as well as the Risk Management Policies.
FCA guidance emphasizes that these entities must also comply with the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017.
In January 2021, retail cryptocurrency derivatives were banned by the FCA in order to protect consumers from market volatility.
How to legally exchange crypto in the UK?
As stated, there must be approval for registration from FCA when it comes to exchanging crypto. However, before submitting your application to register for the crypto exchange license, there are some activities that need to be accomplished first, which include:
- Establish a legal entity
- Maintain a registered office address
- Register for taxation
- Open a bank account
If this sounds unfamiliar to you, having a trusted partner or a consultant such as BBCIncorp might be something that you can take into consideration.
To register crypto exchange license, you can follow these step-by-step processes:
- Login to the website of FCA
- Fill in an online application form
- Pay a registration fee
You may be required to provide information about the key individuals in your business in the application such as shareholders, beneficial owners, company directors, and so on. Once you submit, it will take up to 3 months for FCA to review and approve your request.
Tax laws on cryptocurrencies
Capital gain tax
For a crypto investor, the most common type of income is a capital gain.
The gain on sold cryptocurrency is recognized by HMRC following this formula:
Total revenue from sale – Cost basis (fair market value at the time of purchase) + Fees
Capital gains tax, following your tax bracket, is then due to be paid on the gain. Each crypto investor in the UK is granted a capital gains allowance of £12,300 annually, which can be used on crypto assets.
HMRC also recognizes other types of potential capital gains come from:
- Trading non-fungible tokens (NFTs)
- Selling airdropped tokens
- Trading crypto-liquidity pool token
Income tax is a considerably new adoption of tax laws from HMRC on crypto assets. It’s also quite a new concept in the crypto world.
Staking is the protocol where validators secure each transaction on the blockchain by providing liquidity. HMRC assumes that income tax is payable when a service, even with the smallest one, is performed for crypto assets. As such, income from staking requires taxation at the relative tax bracket.
Other types of crypto income:
- Yield farming
- Airdropped tokens
- Cryptocurrency mining
- Forks, nodes & lending
Be careful with misleading advert
In January 2022, to protect consumers from misleading claims, the UK government strengthened the rules on crypto asset advertisements.
A few highlights from the updates:
- The UK government plans to address misleading crypto asset adverts
- Cryptocurrency promotions will be legislated to ensure fairness and transparency
- New rules will strengthen consumer protection while encouraging innovation
Although the government has strengthened the rules on cryptocurrency adverts, we recommend that users still be mindful to avoid any misleading information or fraud.
The future of crypto regulation in the UK
With the current situation led by the invasion of Russia in Ukraine, there has been ongoing financial turmoil associated with it. As such, the volatility of cryptocurrency markets suggests that UK authorities will likely continue to strongly focus on crypto service providers as a regulatory priority.
Also, in April 2022, the UK government set out plans and announced moves that will see stablecoins recognized as a valid form of payment as part of wider plans to make the UK a global hub for technology and investment in crypto assets.
Although cryptocurrency is legal in the UK, there are still some concerns that should be taken into consideration when you want to do activities that involve crypto assets.
As it’s not accepted legally as an official currency at the moment, businesses should also pay attention to the legal status to adapt their payment method offering to consumers as well as to their operations.
If you would like to have a consultant to help navigate you through the journey and make sure you have everything right and compliant in the crypto world, reach out to BBCIncorp at email@example.com and we will be in touch.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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