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HMRC targeting cryptoasset holders and Foreign Tax Credit Relief claimants

HMRC is currently writing to holders of cryptoassets and those it feels may have incorrectly claimed Foreign Tax Credit Relief on 2019/20 incomes. In both cases, taxpayers are urged to recheck their tax position and correct any errors.

Cryptoassets

HMRC is rolling out a campaign to alert taxpayers it believes have held cryptoassets of the tax implications when disposing of them. This follows on from clarification earlier this year on the tax treatment of cryptoassets.

Using the information, it receives from third parties such as the crypto platforms, HMRC is writing to alert relevant taxpayers to the potential capital gains tax payable when disposing of a cryptoasset.  Disposal in this regard applies to:

  1. Exchanging the cryptoasset for currency, or
  2. Exchanging one cryptoasset for another, or
  3. Purchasing of goods and services

It is HMRC’s view that cryptoassets are sited where the beneficial owner is tax resident. This has the potential for Non-Domiciled individuals who are UK tax resident to be liable to UK taxes when they dispose of the cryptoassets.

The letter also asks taxpayers to review their recent cryptoasset transactions and outlines what to do, if they’ve failed to report disposals which is liable for UK tax.  For examples of the letter see this coverage by the Chartered Institute of Taxation.

Foreign Tax Credit Relief

A separate but similar ‘nudge’ letter is also being targeted at taxpayers who HMRC believes have incorrectly calculated their Foreign Tax Credit Relief (FTCR).

FTCR is available to those people who have already paid tax on their foreign income. The relief is claimed when they report their overseas income in their UK tax return. How much relief is awarded depends on the UK’s ‘double-taxation agreement’ with the country the individual’s income derives from.

Individuals usually still get relief even if there is not an agreement, unless the foreign tax does not correspond to UK Income Tax or Capital Gains Tax.

The FTCR also normally gives taxpayers the opportunity to check and amend their tax affairs without a formal enquiry being undertaken.  HMRC usually charge interest on any underpaid taxes, but don’t typically charge penalties.

HMRC will be offering taxpayers the chance to review and amend their 2019/20 tax return. Providing this is done prior to the 31 January 2022, then individuals are within the amendment window and only interest would be payable on the unpaid tax.  If the amendment is filed after 31 January 2022 penalties may be issued.

The letters, which are reportedly being sent during November 2021 to individuals, focus specifically on foreign investment income in 2019/20 where HMRC believes FTCR has been claimed at the wrong rate.

Again the focus is to encourage the recipient to re-check their tax liability.  In particular, to review the double tax treaty between the UK and the country of their investment’s income

The letter then gives guidance on what to do to make necessary corrections to their UK tax return.  For an example of the letter, see this coverage by the Chartered Institute of Taxation.

Can we help?

If you receive one of these letters from HMRC and would like professional advice, guidance or help in responding to it, please contact one of our team of specialists shown on this page.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP 2021

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