An update on regulating crypto-assets and NFTs in the UK

Cryptoassets, like Bitcoin and NFTs, have been on the scene for years, but the policy around regulating and taxing these digital assets hasn’t changed that much. 

This year, there was a significant update in the Financial Services and Markets Act, but it’s just a first step in regulating the entire industry - and not everyone agrees with how that should be handled.

If you’ve got your own crypto portfolio and are worried about what’s going on with crypto regulation and tax treatment in the UK, we’ve put together a quick explainer on what happened in the last few months and why they matter to you. Keep reading.

What did the Treasury Committee say about crypto?

The various lawmakers and government bodies have been discussing how to regulate crypto for years. But the Treasury Committee made headlines earlier this year by releasing a report that said digital assets like Bitcoin and Ethereum should be regulated like gambling.

The report, which was a cross-party effort, was concerned that the government’s current plans would “create a ‘halo’ effect, leading consumers to believe this activity is safe and protected when it is not”.

“With no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like bitcoin more closely resembles gambling than a financial service, and should be regulated as such,” Harriet Baldwin, MP and member of the Treasury Committee, said in the statement.

How did the UK government respond?

It’s safe to say that the UK government was at odds with the report’s findings, dismissing the Treasury Committee’s statement and continuing with its plan to regulate crypto as a financial service.

The Financial Services and Markets Act became law in June this year, giving regulators more power over the UK financial system in the post-Brexit era - including how to handle crypto and stablecoins. The Treasury Committee had said it was “concerned” about the Act as it was going through Parliament.

The Act gives the power to the Treasury, the Financial Conduct Authority (FCA) and the Bank of England to treat crypto as a regulated activity, with other provisions in the Act including bringing stablecoins under existing payment rules and giving the green light to supervise crypto promotions.

But all of this is just a first step. That means much more legislation is needed to fully regulate cryptoassets and stablecoins in the UK.

What’s happening in the future with crypto regulation?

Prime Minister Rishi Sunak has long been a fan of crypto and tech, stating last year he wanted the UK to become a “crypto hub”. 

The UK and other countries trying to piece together crypto regulation, like Singapore and Dubai, were beaten to the punch by the EU’s Markets in Cryptoassets Regulation sworn into law earlier this year. It’s a comprehensive framework for regulating crypto, but it won’t come into effect until 2024.

There’s also the Bank of England’s central bank digital currency (CBDC), the digital pound, to look out for in the future. The BoE is currently in the project's design phase, covering the tech and policy requirements needed to make the project a success.

What does it all mean for you?

So if you’ve got some crypto in your portfolio, what on earth does this all mean for you?

While it looks like a lot has moved in the last few months, the Financial Services and Markets Act is only the first move in a long line of crypto regulation that needs to come. As much as the UK government wanted to push aside the Treasury Committee’s comments, there’s some truth to the crypto world being a Wild West that we’ve seen with the collapse of FTX, Terra and many more crypto companies.

If you’re worried about how your crypto portfolio might be taxed in the future, you can always come to your accountant with any concerns. But the basics around crypto’s tax treatment are unchanged at present. That means if you sell any crypto, you may need to pay Capital Gains Tax on the profit.

There are different rules and regulations around this, such as the gain you make from selling any crypto tokens within 30 days of buying them being calculated differently. Income tax can also come into the mix too, as well as allowable costs, so it’s worthwhile speaking to a tax professional if you haven’t already.

Final thoughts

It’s great to see the UK government finally moving towards regulating crypto. Now the decision has been made that it falls under the financial services category, the FCA and Bank of England can move ahead with their plans.

As for crypto’s tax treatment, consider your digital assets to be like any other asset in your portfolio - but always be aware the value of crypto swings wildly with the wind.

If you’re after an accountant who knows their stuff with crypto, CGT and all things tax, BXD Accounting has your back. Get in touch today for a free, no-obligation consultation.