UK Expands Tax Break to Allow Investment Managers to Cover Crypto Assets

The United Kingdom disclosed today that it plans to extend tax breaks to enable investment managers to include cryptocurrency investments without attracting additional taxes. 

Earlier in May, authorities launched a consultation on expanding the Investment Management Exemption (IME) to incorporate transactions in crypto assets, seeking public opinion on adding tax relief to fund managers. 

The consultation came after U.K. Prime Minister Rishi Sunak said he plans to improve the country’s position as a global leader in investment management and crypto-assets-related activities in April.

The poll successfully concluded with 14 votes from stakeholders accepting the government’s proposed decision to extend tax benefits to asset managers. 

Becoming Law

The tax relief was accompanied by a series of financial package reforms announced by Jeremy Hunt, Chancellor of the Exchequer, revealing the government’s approach to reforming its financial services regulatory landscape.

“I am today setting out a bold collection of reforms taking forward the government’s vision for an open, sustainable, and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens. These reforms will create jobs, support businesses, and power growth across all four nations of the U.K.,” the Chancellor said. 

With the extension of existing tax rules, investors can now use a U.K.-based asset manager without inviting additional tax liability to the crypto industry. The new changes will be made through Her Majesty’s Revenue and Customs (HMRC), the U.K. tax authority, later this year.

Crypto Definition 

Aside from expanding tax breaks to include crypto assets, the just concluded consultation sought to identify the characteristics of digital assets to enable the tax authorities to brainstorm a proper definition of crypto assets for ITL. 

According to the press release, HMRC wants to adopt a definition for virtual assets similar to that proposed in the Crypto-Asset Reporting Framework published by the Organization for Economic Co-operation and Development (OECD) in March.  

While the definition is currently under review, it reads thus:

“The term ‘Cryptoasset’ refers to a digital representation of a value that relies on a cryptographically secure distributed ledger or a similar technology to validate and secure transactions,” reads the release. 

Meanwhile, in July, the authorities launched a separate consultation seeking investors’ views on the taxation of crypto assets staked in decentralized finance (DeFi) platforms. The public’s call for evidence aims to understand whether to reduce tax burdens on taxpayers who engage with the DeFi sector.