So far, apart from , the UK has not really seen any tax legislation dealing specifically with cryptoassets. Instead, it has relied upon existing tax laws, and guidance that attempts to apply these laws to the new possibilities thrown up by modern technology.
However, that will soon be changing, as the government has recently published draft legislation setting out two helpful changes to tax law, specifically in relation to cryptoassets.
This article sets out one of those changes, relating to stablecoins. The other change, relating to loans and liquidity pools, is covered in a separate article.
Stablecoins and Capital Gains Tax
At present, stablecoins sit in a slightly odd position tax-wise. People very commonly acquire stablecoins pegged to the value of a foreign currency (most usually USD). In most cases foreign currency held by an individual will be exempt from Capital Gains Tax (CGT), either because it is held in a foreign currency bank account, or because it is physical cash acquired for personal spending.
However, the existing exemptions do not necessarily apply to stablecoins. This means that if you purchase stablecoins denominated in a foreign currency, and then by the time you spend them that foreign currency has increased in value relative to GBP, you would have made a taxable gain.
This might mean that a person could have a CGT liability on their stablecoin transactions, and even if they do not, it would still be extremely burdensome to have to try to keep track of gains and losses without specialist software. There is therefore the risk that people will either (1) be entirely unaware of the CGT issues; (2) deliberately choose to ignore the CGT issues; or (3) be deterred from using stablecoins as a form of payment due to the tax complications.
The government has recognised this problem and earlier this year ran a call for evidence. Jack Burroughs of Quastels’ Private Wealth and Tax Team provided comments to this on behalf of the Society of Trust and Estate Practitioners (STEP).
We can now see the draft legislation that is due to form part of the next Finance Bill and take effect from 6 April 2027. This will have the effect of making eligible stablecoins exempt from CGT.
In order to be classed as an eligible stablecoin, the requirements are that:
“it is reasonable to assume that—
(a) a sufficient amount of any currency or other assets are held for the purposes of it maintaining a stable value in relation to sterling or another currency, and
(b) it is designed to be used as a means of payment or settlement.”
In addition, the stablecoin must be widely available.
Note that the definition deliberately only includes asset-backed stablecoins, and therefore algorithmic stablecoins would not qualify for this exemption.
Stablecoins and Income Tax
In addition, the legislation will address another oddity of stablecoin taxation, by treating a return in stablecoins paid in connection with a cryptoasset debt as being interest.
At present, if Alice lends $10,000 worth of USDC to Bob, and Bob agrees to pay Alice back $10,500 worth of USDC after a year, additional $500 of USD would not be classed as interest, but instead taxed as miscellaneous income. However, under the new rules, it will be taxed as income.
Tax law might gradually be catching up with the modern day, but there’s no sign that it’s going to get any less complicated. If you’re transacting in cryptoassets and would like to understand your tax position, the cryptoasset tax specialists in the Private Wealth and Tax Team at Quastels will be happy to help.
