British investors will no longer be able to add crypto exchange-traded notes (ETNs) to their tax-free individual savings accounts (ISAs) after the start of the new tax year on April 6, the Financial Times (FT) reported on Wednesday.
His Majesty’s Revenue and Customs (HMRC) will reclassify cryptocurrency ETNs as qualifying instruments only for Innovative Finance ISAs (IFISAs), rather than the more common stocks and shares ISAs.
ISAs allow users to put away up to £20,000 ($27,000) a year without paying income tax or capital gains tax on the returns. The two main types are cash ISAs, bank account-like investments that 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 increased the possibility of the vehicles being added to everyday products such as ISAs.
Limiting them to IFISAs means that this option will be excluded because no mainstream investment platforms offer them. IFISAs are a somewhat obscure investment wrapper, largely offered for peer-to-peer lending and crowdfunding purposes. None of the 57 platforms currently approved to offer IFISAs have plans to support crypto-ETNs, according to the FT’s report, depriving investors of the tax shield that ISAs provide.
However, investors who already hold crypto ETN holdings in their ISAs will not be forced to sell them, as doing so “may risk some degree of market disruption,” HMRC said.
The authority said the decision was due to the “innovative nature and the fact that it is an emerging market” of crypto-ETNs, and it would keep the decision under review with a view to including them in shares and share ISAs at a later date.
The decision risks positioning the UK as an outlier among the major financial markets, where exchange-traded products (ETPs) have opened the door to crypto investing to a much wider base of users because they remove some of the technical aspects such as having to manage crypto exchanges and wallets.
George Bauer, Fidelity’s head of investment and product for global platform solutions, said the government’s approach “challenges the intention of allowing regulated access to crypto-assets,” the FT reported.
“We would urge the Government and HMRC to reconsider this and allow access through stocks-and-shares ISAs, which are much more widely used.”
HMRC did not respond to CoinDesk’s request for comment.
