In a speech at Innovate Finance Global Summit on Monday 4 April, John Glen, Economic Secretary to the Treasury, set out the UK Government’s goal to become a “global cryptoassets hub”. Proposed measures include changes to tax rules, new regulations on stablecoins and a new NFT issued by the Royal Mint.
On the tax side, Glen stated that the Treasury will be “amending the investment manager exemption to remove disincentives to UK fund managers including disincentives to UK fund managers including cryptoassets in their portfolios”.
When certain conditions are satisfied, the investment manager exemption (IME) means that non-UK resident persons can hire UK investment managers to carry out investment activities without becoming subject to UK tax. This is a concession from the general position, which is that an agent of a non-UK resident person constitutes a UK representative of the non-UK resident person and therefore makes them subject to UK tax on the profits of the transactions undertaken by the UK investment manager.
The Investment Manager Regulations set out a list of “investment transactions” which benefit from the IME and, perhaps unsurprisingly given the pace of developments in the crypto world, there is no mention of crypto. Adding a clear reference to crypto on the approved list of investment transactions, as the Treasury has indicated it will, would assist investment managers in determining that their activities are not subject to UK tax. Nevertheless, it remains to be seen what crypto transactions the Treasury will add to the list, and whether this will extend beyond simply investing in Bitcoin and other cryptocurrencies.
More broadly, Glen also suggested that the tax code did not need “major surgery to make it work more easily for crypto”. While tax practitioners may breathe a sigh of relief that the Treasury is not planning large-scale changes to tax legislation, there are still a number of areas of uncertainty which would benefit from further consideration by the Treasury and HMRC. For example, HMRC’s crypto manual currently only covers exchange tokens, leaving those holding utility or security tokens without guidance on how HMRC will treat them. Additionally, HMRC’s current view is that the situs of cryptoassets will be determined by the residency of the beneficial owner – this was an unexpected break from the traditional situs rules and the technical basis for the conclusions reached is unclear. Further guidance from HMRC would be highly beneficial, especially if the UK is to become the “global cryptoassets hub” the Treasury wants it to be.