How should stablecoins be treated in UK tax reports?
How should stablecoins be treated in UK tax reports?
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Paul Razvan Berg · External communityPost link
External question — Personal Finance Stack Exchange
Author: Paul Razvan Berg
Original post: https://money.stackexchange.com/questions/120170
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
Stablecoins
are digital tokens that stay pegged to the value of fiat currencies like USD or GBP. Two examples of stablecoins are
DAI
and
USDC
, which are both redeemable for $1 on various exchanges.
Now, as a UK resident, I'm bewildered about how I should handle stablecoins in my tax report. I use them in two ways:
Holding them as a hedge against GBP
Occasional speculation, selling DAI (non-volatile) for Ether (volatile)
Let's say I hold 5,000 DAI (approximately $5,000) and I use it all to buy Ether when its price is 200 DAI, so I effectively purchase 25 Ether. Let's further imagine that the price of Ether goes to 210 DAI and I sell it all, but I don't sell it for GBP, I sell it for DAI again. I would now have 5,500 DAI, cashing in 500 DAI as a net profit (excluding transaction fees).
How does the HMRC treat this trade? Considering that DAI is not legal tender, is it even a profit if I never convert it back to GBP?
The official
guidance
on the topic of stablecoins is rather shallow.
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ajrlewis · External communityPost link
External answer — Personal Finance Stack Exchange
Author: ajrlewis
Original post: https://money.stackexchange.com/a/131243
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
If you need to pay capital gains tax, I think that you need to record each step in the trade as if it were a transaction to and from GBP. So it may look something like this:
1. Buy 5,000 DAI for 3,789.77 GBP
2. Buy 25 ETH for 200 DAI
2.1 This is a sell of 200 DAI for X GBP
2.1 This is a a buy of 25 ETH for X GBP
3. Sell 25 ETH for 210 DAI
3.1 This is a sell of 25 ETH for Y GBP
3.1 This is a buy of 210 DIA for Y GBP
This is at least how I'm calculating the amount of capital gains tax that I owe for simple trading. Working out the rate's at each step is a little trickier, i.e. in order to work out profits or losses.
Disclaimer
Note, I am not a tax specialist so you should double check these statements and double check the updated tax regulations.
Helpful
A friend said that you could buy a stable coin,
TrueUSD
or
TrueGBP
.
A stable coin should just be treated like any other crypto assets, so your capital gains on taking a stable coin would be 0.0 GBP.
https://www.trusttoken.com/
https://koinly.io/guides/hmrc-cryptocurrency-tax-guide/
But if you're invested in DAI, or PAX, pegged to a dollar, you might have to pay any gains on currency fluctuations, which are unlikely to be high.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: ajrlewis Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/a/131243 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. If you need to pay capital gains tax, I think that you need to record each step in the trade as if it were a transaction to and from GBP. So it may look something like this: 1. Buy 5,000 DAI for 3,789.77 GBP 2. Buy 25 ETH for 200 DAI 2.1 This is a sell of 200 DAI for X GBP 2.1 This is a a buy of 25 ETH for X GBP 3. Sell 25 ETH for 210 DAI 3.1 This is a sell of 25 ETH for Y GBP 3.1 This is a buy of 210 DIA for Y GBP This is at least how I'm calculating the amount of capital gains tax that I owe for simple trading. Working out the rate's at each step is a little trickier, i.e. in order to work out profits or losses. Disclaimer Note, I am not a tax specialist so you should double check these statements and double check the updated tax regulations. Helpful A friend said that you could buy a stable coin, TrueUSD or TrueGBP . A stable coin should just be treated like any other crypto assets, so your capital gains on taking a stable coin would be 0.0 GBP. https://www.trusttoken.com/ https://koinly.io/guides/hmrc-cryptocurrency-tax-guide/ But if you're invested in DAI, or PAX, pegged to a dollar, you might have to pay any gains on currency fluctuations, which are unlikely to be high.
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