UK Government Targets Crypto Tax Avoidance Starting January 2024

The United Kingdom will implement new regulations targeting cryptocurrency tax avoidance starting January 2024. According to Cointelegraph, the UK Treasury announced that domestic crypto platforms will be required to report all transactions from UK-resident users beginning in 2026, thereby expanding the scope of the Cryptoasset Reporting Framework, known as CARF.

This initiative will provide His Majesty's Revenue and Customs, or HMRC, automatic access to both domestic and cross-border crypto transaction data for the first time. The CARF framework, designed by the Organisation for Economic Co-operation and Development, or OECD, facilitates the automatic cross-border exchange of crypto transaction data between tax authorities globally.

The updated rules require crypto asset service providers to perform due diligence, verify user identities, and report detailed transaction information annually. Previously, the framework primarily focused on cross-border transactions, which meant that crypto activities entirely within the UK were not included in automatic reporting channels.

By broadening the framework to encompass domestic users, the government aims to prevent cryptocurrencies from becoming an off-Common Reporting Standard asset class, thereby ensuring they remain subject to similar visibility as traditional financial accounts.

UK officials assert that this unified approach will streamline reporting for crypto companies and enhance tax compliance by providing tax authorities with a more comprehensive data set to identify noncompliance among taxpayers.

Additionally, on the same day, the UK government proposed a no gain, no loss tax framework that would defer capital gains liabilities for decentralized finance users until they sell their underlying tokens.

This proposed shift has been widely welcomed by the local cryptocurrency industry. This move comes amid a broader global trend of increasing regulatory scrutiny over cryptocurrencies. In South Korea, for instance, the National Tax Service announced plans to seize cryptocurrency held in cold wallets and conduct home searches for hardware devices if they suspect taxpayers are concealing digital assets.

Meanwhile, in Spain, the Sumar parliamentary group is seeking to raise the top tax rate on crypto gains to 47%, which would shift crypto profits into the general income tax bracket. Switzerland has postponed the start of automatic crypto information exchange with foreign tax authorities until 2027, while the CARF rules will commence on January 1.

In the United States, Representative Warren Davidson introduced a bill that would allow Americans to pay federal taxes in Bitcoin, routing payments into a strategic national Bitcoin reserve. This proposal, known as the Bitcoin for America Act, would exempt these payments from capital gains taxes by treating the transferred Bitcoin as neither a gain nor a loss for taxpayers.

The developments in the UK and around the world reflect a significant shift towards stricter cryptocurrency regulations designed to capture digital asset activities more accurately and consistently.