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UK Investment Manager Exemption Includes Crypto Investments

Designated Crypto Assets:

The proposal should make it easier for British funds that work with international investors to include digital assets in their portfolios.

From the tax year 2022 to 2023 onward, transactions involving “designated crypto assets” will be eligible for the Investment Manager Exemption in the United Kingdom. The Commissioners for His Majesty’s Revenue and Customs are currently carrying out certain laws that the British government declared in April (HMRC).

The law by the HMRC to define “designated crypto assets” and add them to the list of investment transactions that fall under the Investment Manager Exemption was released on December 20.

The regulation doesn’t provide a helpful definition of “designated crypto assets,” which go into effect on January 1, 2023. However, it specifically mentions the category of “investment transactions,” referencing section 2 of the Investment Transactions(Tax) Regulations from 2014. The transaction for the supply of services during the time the non-U.K. resident possessed the crypto asset will thus not be considered.

Global Financial Center:

The Investment Manager Exemption (IME) is a mechanism the U.K. uses to enhance its position as a global financial centre. It gives non-U.K. residents the option to designate U.K.-based investment managers to carry out certain investment transactions on their behalf without subjecting them to U.K. taxation.

The “designated crypto assets” will therefore be compared to equities and other assets managed by British funds on behalf of non-British investors. The government’s FinTech Sector Strategy included such a policy, which was unveiled on April 4. According to the consultancy paper:

“This will give U.K. investment managers and non-U.K. resident clients certainty of tax treatment about the inclusion of crypto assets in their portfolios. We anticipate this will also encourage new crypto asset investment management businesses to base themselves in the U.K.”

There are indications that British authorities are changing their stance, as the HMRC judgment mirrors the long-term strategy of the previous administration. Ashley Alder recently informed Treasury members that cryptocurrency-related businesses were “deliberately evasive” and said the industry enabled money laundering. Ashley Alder will take over the Financial Conduct Authority (FCA), the primary financial regulator in the United Kingdom.

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