For many years, independent financial advisers and accountants have been helping people up and down the country invest for their futures.
And alongside the millions of pounds that are funnelled into funds, ISAs and share accounts each month, IFAs and accountants also help their clients negotiate the thorny issue of tax – or keeping it in check.
While they might be able to advise on where to put your pension, there is one thing this group may be a little late to the party on: cryptoassets. The IFA world is still very paper-based while their customers are increasingly digital natives.
A recent survey by eToro found 26% of investors who were taking advice from IFAs advisers, either currently or previously held cryptoassets in some form. Additionally, more than three in five IFAs said they had been asked about investing in cryptoassets by their clients.
Clearly there is a demand for bitcoin, litecoin and all the others, and if IFAs and accountants want to keep giving their clients what they want, they will have to get up to speed. There is quite a bit for them to learn if they want to keep the “trusted adviser” status – and the first thing to read up on is tax.
The nitty gritty
Tax is an extremely important consideration when investing in cryptos – and getting it wrong this end of the stick could be a costly mistake. Selling, exchanging or using cryptos as payment is all considered by Her Majesty’s Revenue & Customs (HMRC) as a disposal.
Advisers need to know (and tell their clients) that no matter the reason for buying cryptos – for investment or just to pay for something – when they action a disposal, any gains are likely to be hit with capital gains tax (CGT). And it is up to the investor to notify the tax office to pay it.
The good news is there are ways to offset this tax – HMRC lets crypto investors deduct what they call allowable costs from any gains or losses made on disposals and these cover a wide range of expenses.
However, if HMRC think you have been making trades using cryptos you may be liable for income or corporation tax. Equally, if someone gives you cryptoassets as a gift, it’s wise to get advice on whether you are liable for duties there too.
The main point for crypto investors and their IFAs and accountants to realise is that regulation seems to be changing all the time and ignorance of the rules is no defence – at least to HMRC.
Want to learn more? Read our report Cryptoassets uncovered which explores the tax treatment of cryptoassets.