NFTs and UK Tax
NFTs and cryptocurrencies have become undoubtedly popular, especially since NFT was Collins Dictionary’s word of the year for 2021.
Non-fungible tokens (NFTs) are unique sets of data on a blockchain. The term non-fungible refers to an asset that is unique and cannot be exchanged like-for-like. Fungible items, such as Bitcoin, can be swapped for another item of the same value.
Even though these digital images can be copied, the purchaser owns a unique code on the blockchain that enables them to identify themselves as the sole owners.
The benefits of tokenising digital artwork have made artists realise they can reach a wider audience than with traditional artwork. However, it is not just artists that are tokenising assets. The gaming industry, fashion companies, sports stars, and musicians are among those who are leveraging NFTs.
What is the tax treatment of Non-Fungible Tokens for individuals?
Whilst there is currently no published guidance on how HMRC views the tax treatment of NFTs, it can be assumed that they will most likely be treated the same as cryptoassets. More can be found on the taxation of cryptoassets in our article ‘Crypto Tax UK’.
Capital Gains Tax
Most individuals, who are seen as investors in cryptoassets, will be subject to capital gains tax. Similarly, if NFTs are bought as an investment and later sold for a profit, the gain made following the sale is subject to capital gains tax.
Losses can also be relieved from other assets that are subject to capital gains tax.
Tax implications can also arise when swapping or gifting NFTs (except to a spouse). HMRC views this as disposal of an asset.
Income Tax
Where a transaction involving an NFT can be attributed to trading, income tax will apply. To establish if income tax is due, HMRC applies a number of tests known as ‘The Badges of Trade’. This test determines if the activity is a trade.
An example of where income tax will likely apply is when an artist or musician sells their work as an NFT and subsequently makes a profit through this trade.
How can we help?
Whether you are an investor in NFTs or you are an artist selling your work as an NFT, it is important to understand the tax implications when selling, exchanging or gifting these assets.
When dealing with the taxation of NFTs or cryptoassets it is always best to seek professional advice.
If you would like to discuss your tax position in relation to NFTs, please get in touch for a free consultation with our expert team.
Call us on 01704 891676
Email us at info@stseurope.co.uk
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The information in this guide is intended as an informative piece and does not constitute tax advice for individual matters.
