The UK government is actively reviewing Major Changes To Stablecoin Tax Treatment. As a result, this move could reshape how this form of cryptocurrency is taxed in future. Additionally, this could reshape how stablecoins are taxed and reported.
Consequently, stablecoins may play a much larger role in the UK economy, particularly in wholesale and retail payments.
What Are Stablecoins and Why Do They Matter?
Stablecoins aim to hold a consistent value. Therefore, they differ from volatile cryptoassets like Bitcoin and Ethereum etc. This stability is typically achieved by::
Stablecoins are gaining traction because they:
As a result, their use in both retail and wholesale payments is expected to grow significantly.
Current UK Tax Treatment of Stablecoins
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.
The tax treatment depends on how the stablecoins are used and their specific characteristics. Importantly, they are not generally treated as money.
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. Instead, they are typically taxed as miscellaneous income.
Potential changes to the UK Tax Treatment of Stablecoins
The government recognises that the current rules create friction compared to fiat currency transactions. As a result, it is exploring reforms to align tax treatment more closely with how stablecoins are actually used.
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.
Summary
These major changes to stablecoin tax treatment could transform how crypto is used in the UK economy. However, stablecoins are evolving rapidly. Therefore, 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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