The UK includes investments in cryptocurrencies under the investment manager exemption

Transactions in “designated crypto-assets” made from tax year 2022 to 2023 onwards will qualify for the UK investment manager exemption. Some laws were announced by the UK government in April and are now enforced by the Commissioners for His Majesty’s Revenue and Customs (HMRC).

On December 20, HMRC released its legislation to define “designated crypto-assets” and include them in the list of investment transactions that qualify for the investment manager exemption.

The regulation, which will take effect on January 1, 2023, does not contain a positive definition of “designated crypto assets”. However, quoting section 2 of the Investment Transactions (Tax) Regulations 2014, it specifically refers to the class of ‘investment transactions’. Therefore, the transaction for the provision of services while the crypto asset is held by the non-UK resident will not be counted.

The Investment Manager Exemption (IME) serves as a tool for the UK to strengthen the country’s status as a financial hub. It gives non-UK resident investors the right to appoint UK-based investment managers to conduct certain investment transactions on their behalf, without bringing them within the scope of UK taxation.

Related: UK continues cryptocurrency efforts through financial services reforms

Therefore, the “designated cryptoassets” will be equated with shares and other assets under the governance of UK funds, acting on behalf of non-UK investors. Such a measure was introduced as part of the government’s FinTech sector strategy on 4 April. As the advisory document states:

“This will provide certainty of tax treatment to UK investment managers and their non-UK resident investors who are looking to include cryptocurrencies in their portfolios, and we expect this will also encourage new cryptocurrency investment management businesses to settle in the UK”.

As HMRC’s decision reflects the previous government’s long-term strategy, there are signs of altitude changes among UK regulators. Ashley Alder, who will take over the UK’s Financial Conduct Authority (FCA), the country’s top financial regulator, recently told Treasury members that cryptocurrency-related activities are “deliberately evasive” and suggested that the industry has facilitated money laundering.