The new HM Treasury regulations: The good, the bad and the ugly

The new HM Treasury regulations: The good, the bad and the ugly

The 2021-2022 United Kingdom tax years ended on April 5, 2022. Her Majesty’s Treasury announced that they were making the U.K. a global hub for crypto asset technology. This could indicate that the U.K., which was previously not crypto-friendly, is now trying to make crypto investments more appealing. What are the possible scenarios?

According to the Financial Conduct Authority (FCA), an U.K. financial regulatory body, approximately 2.3 million U.K. adults held crypto in 2021. This represents a 21% increase year-over-year. With rising interest in crypto and the potential for mass adoption, it seems only natural that HM Treasury would review its crypto regulations. This is especially true considering the fact that crypto assets are attracting more private investment in the U.K.: According to the FCA’s Financial Lives survey, 2.3 million of the 17.3million adults own some type of investment product.

What did HM Treasury say about this?

HM Treasury packed a lot of information into this announcement. However, it stated that: 1) stablecoins will be regulated and recognized as a method of payment; 2) legislation for a financial market infrastructure sandbox will be enacted to help businesses innovate; 3) The economic secretary will create a crypto engagement team with key figures from regulatory agencies to advise the government; 4) A review of U.K. cryptocurrency tax legislation will be conducted to encourage further development in the crypto market, including a review on DeFi loan taxes; 7) FCA will host a two-day event called “CryptoSprint”, in May.

These measures could have a significant impact on investors, crypto exchanges and other crypto businesses. Let me share some of my speculations and predictions.

Related: How do politicians, Bitcoiners and financial experts react to inflation in Europe?

The good

Stablecoins: It is a huge announcement that stablecoins could be accepted as a payment method. Stablecoins must be considered legal tender in order to function as a payment method. Stablecoins, although they are tied to fiat currency still represent an asset. It is therefore natural that stablecoins will need to be reclassified. Spending crypto will become more common once stablecoins no longer have to be subject to capital gains taxes. We could also see crypto being used as a payment method in mainstream industries. This is a major game-changer.

DeFi tax: In May, Her Majesty’s Revenue and Customs (HMRC), Britain’s tax agency, published guidance about the tax treatment of various DeFi investments. It would be an understatement to say that it was not well received. DeFi loans, like many other tax laws, would be treated as profits subject to capital gains and disposals for both lenders, and borrowers. Although the announcement of the review is good news, it’s possible that investors will hope that HMRC might change their stance on DeFi loans.

Related: DeFi: What, who, and how can we regulate in a code-governed, borderless world?

Foreign investors: There are some good news for them too. The Investment Manager Exemption, which allows non-U.K. residents to appoint U.K. investment managers without putting them at risk of U.K taxation, could be extended to crypto assets. This would encourage investment in the U.K crypto market, which is a welcome boon after Brexit.

FCA: The FCA CryptoSprint and the crypto engagement group are great news for the industry. Many companies have failed to comply with the Anti-Money Laundering standards under the FCA’s current regulation of crypto operations. Many crypto exchanges could benefit from a more consistent approach to creating regulation that is uniform across the board.

The bad

Here’s the flip side to the coin if you are skeptical about what the government actually does.

A DeFi tax U-turn. The review of cryptotaxation could be just another way to tax smaller investors. HMRC’s DeFi guidance was released in February. It states that taxes must be paid on all transfers to and from liquidity pool, DeFi loans and loan collateral. Given the recent nature of this guidance, it is difficult to know if HMRC is ready to help with a more fitting DeFi tax policy.

Related: How should DeFi regulation be done? European decentralization: A European approach

More regulation: Cryptocurrency could lead to increased regulation. The government does not have to accept the views of key industry stakeholders when creating new regulations. All of us can hope for a more consistent approach to crypto regulation, which benefits investors by providing greater consumer choice and protection. But that is another matter.

The ugly

Britcoin? Specific stablecoins are not mentioned in the announcement. This announcement may only be about a government-approved “Britcoin”, which could have little impact on the wider cryptocurrency market. CBDCs might “sound” like cryptocurrency, but they are not. There are many differences, but one thing to remember is that crypto can be taxed like an asset. CBDCs can be described as digital fiat currencies that are blockchain-based.

The vaguely-positioned announcement by The Royal Mint NFT Commission as “an emblem for the forward-looking approach we are determined to adopt” reinforces the notion that the Boris Johnson government doesn’t care about encouraging growth in the wider cryptocurrency markets, but rather in getting “Britcoin off the ground and cashing in on it. This is speculation.

What is PR halo?

Brexit, COVID-19 Ukraine, and the cost to live. No. No. Crypto enthusiasts might agree that the U.K. is not particularly crypto-friendly. Will this newfound interest last? And will positive headlines lead to positive results?

This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Tony Dhanjal is the Koinly head of tax and a recognized expert in crypto tax. He is also a thought leader within this field. With over 20 years experience in accounting, he has worked for blue-chip companies, investment banks and public practice.

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Amy Jimenez

Amy Jimenez– Services My name is Amy Jimenez, and I am the main writer behind the"" for the ground-breaking and most fragile bits of knowledge into the most recent news in the services sector. I began my voyage of work as an autonomous investment advisor. I had around 4 years of involvement in this field. I am a free soul so; my energy for investigating the world has taken me to the countries over the globe and allowed me to report for a part of the best news affiliations. At present, I am a full-time manager as experienced in the account and began to utilize my capacities.

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