UK Government Introduces Bill to Regulate Digital Assets
Proposed Legislation to Bring Cryptocurrencies and NFTs into Mainstream Finance
In September this year, the UK government introduced a bill to Parliament that aims to protect digital assets, such as cryptocurrencies and non-fungible tokens (NFTs). The Property (Digital Assets etc.) Bill will place digital assets in the same category as stocks, shares, and bonds, for the purposes of law. If the proposed Bill passes into law, digital assets can be considered by the courts in the same way as physical assets of value, such as cars, houses, and jewelry.
Impact on Taxation and Estate Planning
The Property Bill would bring items like cryptocurrency holdings and NFTs into the official contents of, for instance, a deceased person’s estate, and therefore be subject to Inheritance Tax. Likewise, it would give government bodies more leeway in considering a person or organisation’s income and assets for tax assessment purposes.
Staking Services and Stablecoins
Further ethereal concepts such as in-game assets of value, email accounts’ contents, and carbon credits will also be affected by the new law. Tulip Sadiq, speaking at last week’s Tokenisation Summit in London, confirmed that ‘staking services’ will also come under the law’s remit. Staking services apply to cryptocurrencies that have their value determined by proof-of-stake. Staking is when a holder of a specific currency (Ethereum, Solana, and Cardano, for example) allows a portion of their funds to be committed to the general verification process of the blockchain’s transactions. This ‘lending’ of value earns the holder an income based on the amount staked. Staking is seen as a way that cryptocurrency owners can earn money on their assets, rather than simply leaving all funds to be hodl-ed in a wallet where its value is determined only by the market.
Regulatory Framework for Digital Assets
The law will also consider stablecoins to be effectively the same type of asset as a ‘traditional’ cryptocurrency. Stablecoins are cryptocurrencies that are pegged in value against a more stable, often more trusted measure, such as a national fiat currency.
Conclusion
By bringing more digital assets into the purview of the financial authorities and HMRC, cryptocurrencies and digital assets gain a greater measure of credibility for the general public. Conversely, for some traders and fund holders, there are significant personal and organisational tax issues that may not previously have been relevant.
FAQs
- What is the purpose of the Property (Digital Assets etc.) Bill?
- The Bill aims to regulate and protect digital assets, such as cryptocurrencies and NFTs, by placing them in the same category as stocks, shares, and bonds for the purposes of law.
- How will the Bill impact taxation and estate planning?
- The Bill will bring digital assets, such as cryptocurrency holdings and NFTs, into the official contents of a deceased person’s estate, subjecting them to Inheritance Tax. It will also give government bodies more leeway in considering a person or organisation’s income and assets for tax assessment purposes.
- What is staking, and how will it be affected by the new law?
- Staking is a way for cryptocurrency owners to earn money on their assets, rather than simply leaving all funds to be hodl-ed in a wallet. The new law will consider staking services, which apply to cryptocurrencies with a proof-of-stake consensus mechanism, as a way to earn income on digital assets.
