As trailed by the Treasury back in April, HMRC has published a consultation on expanding the list of “investment transactions’” which benefit from the investment management exemption (IME) to include cryptoassets. HMRC seeks feedback on the definition of cryptoassets to be used as well as the likely types of funds and fund products which will benefit from the inclusion of cryptoassets on the list.
As previously explained, the IME means that non-UK resident persons can hire UK investment managers to carry out investment activities without becoming subject to UK tax. Adding activities involving cryptoassets to the approved list of investment transactions would assist investment managers in determining that their activities are not subject to UK tax.
The consultation acknowledges that cryptoassets is an asset class that continues to evolve, and the definition adopted should be “future-proof”. HMRC suggests adopting the broad definition proposed by the OECD in the Crypto-Asset Reporting Framework, noting that this includes (but is not limited to):
- exchange tokens;
- utility tokens;
- security tokens;
- smart contracts; and
- non-fungible tokens.
However, HMRC wants to exclude transactions in land and cryptoassets that provide for the transfer of tangible assets or intangible assets not already included on the list of approved investment transactions.
The consultation also asks whether the change should be applied more broadly to other fund tax regimes which also use the investment transactions list.
This consultation marks the start of what is likely to be a number of piecemeal changes made to ensure the UK tax system keeps pace with the development and use of cryptoassets. To date only guidance has been issued (some of which has created more questions than answers), and it is therefore hoped these changes will pave the way for greater certainty in the tax system and help the UK on its journey to become a “global cryptoassets hub”.