UK investors will no longer be able to add cryptocurrency exchange-traded notes (ETNs) to their tax-free individual savings accounts (ISAs) when the new tax year begins on April 6, the Financial Times (FT) reported on Wednesday.
Tax authority HM Revenue and Customs (HMRC) will reclassify cryptocurrency ETNs as qualifying instruments only for the Innovative Finance ISA (IFISA), rather than the more mainstream Stocks and Shares ISA.
An ISA allows users to save up to £20,000 ($27,000) per year without paying income tax or capital gains tax. 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.
Last October’s decision by the Financial Conduct Authority to lift a ban on retail investors accessing crypto ETNs was seen as a significant development for the adoption of cryptocurrency investing in the UK, as it raised the possibility of adding these instruments to everyday products such as ISAs.
Restricting them to IFISA means that this opportunity will be stifled as no mainstream investment platform offers them. IFISA is a somewhat obscure investment wrapper primarily used for peer-to-peer lending and crowdfunding. According to the Financial Times report, none of the 57 platforms currently authorized to offer IFISAs plan to support cryptocurrency ETNs, depriving investors of the tax shield provided by ISAs.
However, HMRC said investors who already hold cryptocurrency ETNs in ISAs will not be forced to sell them as doing so “may carry a degree of risk of market disruption”.
The agency said the ruling was due to the “innovative nature of the cryptocurrency ETN and the fact that it is an emerging market” and that it will continue to review the decision with a view to later including it in the Stocks and Shares ISA.
The decision threatens to make the UK an outlier among major financial markets where exchange-traded products (ETPs) have opened the door to cryptocurrency investing to a wider user base as they remove some of the technical aspects, such as the need to deal with cryptocurrency exchanges and wallets.
According to the Financial Times, George Ball, Fidelity’s head of investments and products for global platform solutions, said the government’s approach “challenges the intent of allowing regulated access to crypto assets.”
“We encourage the government and HMRC to reconsider this and allow access via a more widely available Stocks and Shares ISA.”
HMRC did not respond to CoinDesk’s request for comment.
