UK Includes Crypto Holdings Under ‘Investment Manager Exemption’

Lavina Daryanani

UK’s HM Revenue and Customs [HMRC] Department recently released a set of legislation to chalk out “designated crypto assets.” Transactions involving such assets entered from the tax year 2022-2023 will qualify for the Investment Manager Exemption in the UK. The same will come into force on January 1, 2023.

Breaking It Down

The publicly released document did not entail a proper definition of designated crypto assets. Nevertheless, it cited section 2 of the Tax Regulations, where it was essentially referred to the class of “investment transactions.”

Simply put, the Investment Manager Exemption identifies whether or not overseas investors are liable for tax on transactions conducted by a UK investment manager. Doing so has beefed up the country’s financial hub footing. In fact, per the HMRC,

One of the reasons for the UK attracting non-resident investors (including hedge funds) is their ability to appoint UK based investment managers without creating a risk of UK taxation for themselves.

So, the transactions for the provision of services in the afore-highlighted period, while the crypto asset is held by a non-UK resident, won’t be counted under tax. This means the “designated crypto assets” will be treated like stocks and other assets under the governance of UK-based funds on behalf of non-UK based investors.

In fact, a consultancy paper released in April regarding the same chalked out that doing so will provide certainty of tax treatment to UK investment managers and their non-UK resident investors who are seeking to include cryptocurrency assets in their portfolios.

The enforcement of the same will likely foster new cryptocurrency asset investment management businesses to base themselves in the UK.

More Crypto Regulations Incoming?

Leaving aside the latest development, it should be noted that, Ashley Alder, the incoming Chair of the Financial Conduct Authority, recently noted that cryptocurrency firms hoping to build businesses in the UK will face a mounting battle when the agency assumes new powers to regulate the sector.

In fact, he also opined that cryptocurrencies should be regulated further. More so, platforms are “deliberately evasive,” foster money laundering at scale, and create “massively untoward risk.”

Read More – Crypto Should be Regulated Further in UK: Ashley Alder