Her Majesty’s Revenue and Customs (HMRC) has ruled that United Kingdom Bitcoin investors cannot classify trading or investment in cryptocurrencies as gambling. If they were able to classify cryptocurrencies in this way, they would not have to pay any tax on such transactions.
Unfortunately for these people, the HMRC’s new policy paper clarifies the situation once and for all. Previously, there was a lot of uncertainty on the matter. The ruling says that they do “not consider the buying and selling of crypto assets to be the same as gambling.”
What does this mean?
Cryptocurrency transactions are to be considered as chargeable assets. Therefore, they are subject to capital gains tax. This is because you can own these assets, as well as their having a value that can be realized in the wider market.
The ruling says: “In the vast majority of cases, individuals hold crypto-assets as a personal investment, usually for capital appreciation in its value or to make particular purchases. They will be liable to pay capital gains tax when they dispose of their crypto-assets.”
This is the first time in almost four years that guidance on the issue of digital currencies has come from the HMRC. Back then, these investments were of such a highly speculative nature that they were not considered taxable. However, with the popularity of the cryptocurrency sector exploding in 2017, it was important for the authorities to clarify the issue.
There were indications early in the year that the HRMC would provide clarification before the end of the year. Investors in cryptocurrencies were classifying their trading activities as gambling to avoid paying taxes on these transactions. As a result, the HMRC would lose millions in potential revenue.
The current cryptocurrency scene
During 2017, massive hype surrounded Bitcoin and other cryptocurrencies. They were entering the mainstream, and there were countless stories of people becoming millionaires overnight due to their Bitcoin holdings.
Bitcoin began 2017 at around the $1,000 mark, and by the end of the year, it got to nearly $20,000. However, 2018 has not been as kind to the sector. The bubble has popped, and Bitcoin is now worth only about $4,000, reflecting the highly speculative nature of the sector and the need for strict guidelines.
Many believe that, because of its highly speculative nature, trading in Bitcoin is more akin to gambling than investing.
Bitcoin and gambling links
There are a lot of links between Bitcoin and online gambling. One of the issues that arise with online gambling platforms is privacy.
Many people don’t want to trust their financial data on the platform, or they don’t want gambled-related transactions to appear on their bank statements. That’s why a lot of online gambling platforms began accepting cryptocurrency.
Many platforms were even set up that accept only cryptocurrency because it is a lot more anonymous and the user has a lot more control over the data. It is faster and cheaper to process deposits and withdrawals.
However, a lot of online platforms are moving away from this payment method because the price is so volatile. The value of holdings can swing wildly from day to day, and they do not want to accept such a high level of risk.