UK investors will no longer be able to add crypto exchange-traded notes (ETNs) to their tax-free individual savings accounts (ISAs) after the new tax year begins on April 6, the Financial Times (FT) reported on Wednesday.
The tax authority, His Majesty’s Revenue and Customs (HMRC), will reclassify cryptocurrency ETNs as eligible instruments only for Innovative Finance ISAs (IFISAs), rather than the more common stocks and shares ISAs.
ISAs allow users to put aside up to 20,000 pounds ($27,000) a year without paying income tax or capital gains tax on returns. The two main types are cash ISAs, bank account-style investments which pay interest, and stocks and shares ISAs, which invest in stocks 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 investments in the UK, as it raised the possibility of the vehicles being added to everyday products such as ISAs.
Limiting them to IFISAs means that this opportunity will be removed as no traditional investment platform offers them. IFISAs are a somewhat obscure investment vehicle, offered largely for peer-to-peer lending and crowdfunding purposes. According to the FT report, none of the 57 platforms currently authorized to offer IFISAs plan to support crypto ETNs, depriving investors of the tax shield that ISAs offer.
Investors who already hold crypto ETN holdings in their ISAs will not be forced to sell them, however, as doing so “could risk some level of market disruption”, HMRC said.
The authority said the decision was due to the “innovative nature of crypto ETNs and the fact that it is an emerging market”, and that it would keep the decision under review with a view to including them in the Stock ISA 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 crypto investing to a much wider user base, as they remove some technical aspects such as the need to manage crypto exchanges and wallets.
George Bauer, Fidelity’s head of investments and products for global platform solutions, said the government’s approach “calls into question the intention of allowing regulated access to crypto assets”, the FT reported.
“We would encourage the Government and HMRC to reconsider this and allow access via ISAs to shares which are much more widely used.”
HMRC did not respond to CoinDesk’s request for comment.
