By Myna Accountants
Recently, both Bitcoin (BTC) and Ethereum (ETH) spot ETFs were approved in the US by the Securities and Exchange Commission (SEC). You may have heard this news and wondered what an ETF is and why you should care, or you may know exactly what they are but want to understand the potential tax implications of purchasing them. This article sets out to answer both of those burning questions!
What is an ETF?
An ETF, or Exchange-Traded Fund, is a type of investment fund and exchange-traded product with shares that are tradable on a stock exchange. ETFs are designed to provide investors with exposure to a diversified portfolio of assets, such as stocks, bonds, commodities, or other financial instruments, without the need to buy individual securities.
What are the tax implications of ETFs?
There are two types of offshore ETFs with different treatments.
Reporting Fund: This is where the fund manager would report any excess on the fund to HMRC and the individual would be taxed on this excess under the income tax regime based on their proportion owned by the fund. Upon disposal, there would be capital gains tax. The base cost is affected by the tax on the excess to avoid double taxation.
Non-Reporting Fund: This type of fund can be transparent and therefore taxed like a reporting fund, though this is not the case for most. Income received is usually allocated as miscellaneous income or sometimes dividends. Upon disposal, you would be taxed under the income tax regime as miscellaneous income, though the method of calculation would follow the capital gains tax rules. This is known as the offshore income gain. Any losses would be of a capital nature and cannot be used against other offshore income gains, as a gain would be taxed under the income tax regime.
BTC and ETH ETFs in the UK UK residents have been informed that they will not be able to purchase BTC and ETH ETFs from UK platforms due to regulatory issues surrounding these ETFs. However, some have been using other trading platforms to access these funds. Depending on the type of fund, there will be different tax implications as explained above.
Why invest in BTC and ETH ETFs?
- Simplified Investment: Holding BTC and ETH through an ETF eliminates the need to set up a wallet and buy through a crypto exchange.
- Reduced Counterparty Risk: ETFs offered by large regulated financial institutions are perceived to have less counterparty risk.
- Institutional Investment: ETFs provide an option for both retail investors and institutions to invest with added security and ease.
- Potential Future Benefits: While not currently available, ETFs could eventually allow for investment through ISAs or SIPPs, providing a tax-efficient way to invest in BTC and ETH.
The first day of trading saw significant purchases of the BTC ETF, making it one of the largest ETF launches ever, with $4.6B in purchases.
How can Myna help?
If you have, or are considering purchasing, BTC or ETH ETFs, our team of experts can help advise you on the tax implications and tailor advice to your specific personal circumstances.
For more information and personalised advice, contact Myna today. Our specialists are here to help you navigate the complexities of investing in cryptocurrency ETFs.
