UK investors will no longer be able to add crypto exchange-traded notes (ETNs) to their individual savings accounts (ISAs) tax-free after the start of the new tax year on April 6, the Financial Times (FT) reported on Wednesday.
The tax authority, Her Majesty’s Revenue and Customs (HMRC), will reclassify cryptocurrency ETNs as qualifying instruments only for Innovative Finance ISAs (IFISAs), rather than the more conventional stocks and shares ISAs.
ISAs allow users to save up to £20,000 ($27,000) a year without paying income tax or capital gains tax on returns. The two main types are cash ISAs, bank account-like investments that pay interest, and stocks and shares ISAs, which invest in shares and exchange-traded instruments.
The Financial Conduct Authority’s decision to lift the ban on retail investors accessing crypto ETNs last October was seen as a major development in the adoption of cryptocurrency investing in the UK as it raised the prospect of the vehicles being added to everyday products such as ISAs.
Limiting them to IFISAs means that this opportunity will disappear because no conventional investment platform offers them. IFISAs are a somewhat obscure investment wrapper, offered primarily for peer-to-peer lending and crowdfunding purposes. According to the Financial Times report, none of the 57 platforms currently authorized to offer IFISAs have plans to support crypto ETNs, depriving investors of the tax shield that ISAs provide.
However, investors who already have cryptocurrency ETN holdings in their ISAs will not be forced to sell them, as doing so “could risk some level of market disruption”, HMRC said.
The authority said the ruling was due to the “innovative nature of crypto ETNs and the fact that they are an emerging market”, and that it would keep the decision under review with a view to including them in stocks and shares ISAs at a later date.
The decision risks positioning the UK as an outlier among major financial markets, where exchange-traded products (ETPs) have opened the door to cryptocurrency investing for a much broader base of users because they remove some of the technical aspects, such as the need to deal with cryptocurrency exchanges and wallets.
George Bauer, head of investments and products for global platform solutions at Fidelity, said the government’s approach “defies the intent of allowing regulated access to crypto assets,” the Financial Times reported.
“We would encourage the government and HMRC to reconsider this and allow access through ISAs to stocks and shares which are much more widely used.”
HMRC did not respond to CoinDesk’s request for comment.
