HMRC says that in the vast majority of cases individuals will be holding bitcoin as a personal investment, making gains subject to capital gains tax. However, income tax and national insurance contributions may be payable where cryptoassets are received from an employer as a form of remuneration or where the assets are received from mining, transaction confirmation or airdrops.
The guidance says that income tax, rather than capital gains tax, may be payable where the individual is carrying on a financial trade in cryptoassets, but it considers this will be an unusual.
"Only in exceptional circumstances would HMRC expect individuals to buy and sell cryptoassets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself," the guidance says.
It confirms that for direct tax purposes bitcoins or other cryptoassets will not be treated as currency or money. It also confirms that HMRC does not consider the buying and selling of cryptoassets to be the same as gambling. Gambling winnings are not subject to tax.
The guidance sets out how the capital gains tax rules will be applied. Essentially cryptoassets will be taxed like shares and 'pooling' will apply so that the acquisition costs of all the assets owned will be added to the pool. Each type of cryptocurrency owned will be pooled separately so that disposals will be treated as part disposals of all the tokens of that type owned by the individual.
The guidance deals only with the tax position of individuals and only covers cryptoassets which are used as 'exchange tokens', which means that they are intended to be used as a method of payment. This includes cryptocurrencies such as bitcoin.
As the cryptoassets sector is "fast-moving and developing all the time", HMRC confirms that it will look at the facts of each case and apply the relevant tax provisions according to what has actually taken place, rather than by reference to terminology. It also warns that its "views may evolve further as the sector develops".
HMRC intends to publish further information about the tax treatment of cryptoasset transactions involving businesses and companies.
HMRC's last guidance on the tax treatment of bitcoin and cryptocurrencies was issued in 2014 when it confirmed that the UK would exempt the creation and trading of bitcoin and other virtual currencies from VAT as a 'payment service', rather than a currency.