Stablecoins are often viewed as a “safe” form of cryptocurrency because they are linked to fiat currencies such as the US dollar. However, from a UK tax perspective, stablecoins are not treated as money. They are treated as cryptoassets, meaning disposals can still trigger tax.
HMRC does not distinguish stablecoins from other cryptoassets in any meaningful way. As a result, because of how stablecoins are taxed they can still give rise to taxable gains, even where there is little or no apparent movement in value.
This is an area where misunderstandings are common, particularly where individuals are using stablecoins as a temporary store of value between trades.
Why stablecoins are still within the scope of tax
The key point is that HMRC treats cryptoassets as property rather than currency. Moreover, that applies equally to Bitcoin and to USD-pegged tokens such as USDT or USDC.
Consequently, in practice, this means that moving into a stablecoin is not a neutral step. It is treated in the same way as selling one asset and acquiring another. Additionally, the gain or loss must therefore be calculated at the point of exchange, using the sterling value at that time.
The practical impact of small movements
Therefore, where individuals are actively trading, this can result in a large number of taxable events, even if the intention was simply to “park” funds temporarily.
However, while these amounts may be relatively small on a transaction-by-transaction basis, they can accumulate over time. Where records are incomplete, these differences are often missed entirely, which can lead to inconsistencies in the overall position.
Use of stablecoins as a payment mechanism
Stablecoins are increasingly being used for payments, particularly in decentralised finance and cross-border transactions.
Consequently, from a tax perspective, using a stablecoin to acquire goods or services is still treated as a disposal. Therefore, the gain or loss is calculated by reference to the difference between the acquisition cost and the value at the point of use.
As a result, this can come as a surprise where the transaction feels closer to spending cash than disposing of an investment.
Stablecoins are gaining traction because they:
Consequently, their use in both retail and wholesale payments is expected to grow significantly.
How stablecoins are taxed currently
Currently, there is no specific tax treatment for stablecoins, and they are taxed in the same way as other cryptocurrency. Furthermore, the term 'stablecoin' does not yet have a specific definition in tax legislation.
Therefore, how stablecoins are taxed depends on how they are used and their specific characteristics. Importantly, they are not generally treated as money. The treatment is summarised below
Individuals: Capital Gains Tax ('CGT')
The current treatment means that stablecoins used as a form of payment will be regarded as a disposal for CGT purposes. Therefore, this means transactions should be tracked and reported to HMRC. Furthermore, this creates a significant administrative burden, especially for frequent, low-value transactions.
Individuals: Income Tax
Income Tax may apply in some of the following circumstances:
Companies: Corporation Tax
For companies, the treatment depends on usage. Stablecoins may fall within:
Interest and returns
Returns from lending stablecoins are not treated as interest, as they are not considered money. As a result, they are typically taxed as miscellaneous income by HMRC.
Potential changes to how stablecoins are taxed
There has been discussion at HMRC level around whether certain stablecoin transactions should be treated differently, particularly where they function more like electronic money. At present, however, no specific exemption applies. Therefore the existing framework continues to apply in full.
Given the direction of travel in terms of regulation and reporting, this is an area that may evolve, but any changes are likely to be targeted rather than a wholesale shift in treatment.
Individuals
Potential changes include:
However, no changes are currently proposed for Income Tax.
Companies
For companies, proposals include:
These changes would simplify and standardise tax outcomes.
Interest-Like Returns: A Grey Area
The tax treatment of returns that resemble interest remains unclear. As a result, the government is actively seeking feedback, making this a key area to monitor for businesses involved in crypto lending or DeFi.
Where issues typically arise
In practice, we tend to see problems where:
These issues rarely arise from deliberate behaviour. Moreover, they are more frequently a consequence of how crypto activity is recorded and interpreted.
What should you do?
If you are using stablecoins regularly, it is important to ensure that:
Summary
These major changes to how stablecoins are taxed could transform how crypto is used in the UK economy. As a result, tax policy must evolve just as quickly. Consequently, businesses and investors should engage with the consultation process now to help shape the outcome.
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