HMRC have published responses to its call for evidence, 'The Taxation of Stablecoins', which explored how this cryptoasset should be taxed for individuals and companies. Draft legislation has been published setting out the likely changes that will take effect from April 2027.
Background
Stablecoins are not currently subject to any specific tax treatment. As such, they are taxed in the same way as other Cryptoassets. There is no specific definition of stablecoins in the tax legislation.
- Their tax treatment currently depends on the circumstances in which the coins are used and the particular features of the stablecoin in question.
The government recognises that this may create administrative burdens that do not apply to fiat currency equivalents, and is therefore seeking to reform how stablecoins are taxed. The intention is to introduce a new method of taxing these assets which better reflects how they are used.
A stablecoin is a type of cryptocurrency designed to maintain a stable value relative to a specific asset, such as a fiat currency like the US dollar. They provide a less volatile alternative to traditional cryptocurrencies
The Call for evidence proposed several options
For individuals
- To treat stablecoins as exempt assets for Capital Gains Tax (CGT).
- Alternatively, to remove reporting requirements for Self Assessment purposes so that transactions below a certain value are not reportable.
- To retain the current Income Tax treatment, as it does not appear to be causing any problems.
For companies
- To bring stablecoins into the Loan relationship rules by treating them as money, a money debt or a loan relationship, where they do not already constitute one.
- Alternatively, to ensure that when a company lends stablecoins, this is treated as a transaction for the lending of money. This would result in the coins being treated as financial assets but not within the loan relationships rules.
Individuals and companies with interest-like returns
- No specific proposals were made regarding interest-like returns on stablecoins. The call for evidence instead asked for opinions on how returns on stablecoins should be treated.
Responses
The government received 29 formal written responses from a range of stakeholders, including businesses, tax professionals, representative bodies, financial services firms, cryptoasset firms, software providers and individuals.
The respondents, who unanimously supported the government’s decision to consider reforming the tax treatment of stablecoins:
- Overwhelmingly thought that the current CGT treatment of stablecoins causes administrative difficulties for individuals, raising the following concerns:
- Each use of a stablecoin can constitute a disposal for CGT purposes, requiring individuals to record acquisition costs, disposal values and sterling valuations even where the gain or loss is negligible, creating a compliance burden disproportionate to the economic return and in contrast to the position for equivalent fiat currency payments.
- This issue would become more significant if stablecoins were adopted more widely for retail payments, remittances, card payments, freelance payments or cross-border transfers.
- Whilst tax software might help and be used by those already active in cryptoasset investment, ordinary retail users are unlikely to use it, and some software may not deal accurately with high volumes of transactions or UK tax rules without manual review.
- Each use of a stablecoin can constitute a disposal for CGT purposes, requiring individuals to record acquisition costs, disposal values and sterling valuations even where the gain or loss is negligible, creating a compliance burden disproportionate to the economic return and in contrast to the position for equivalent fiat currency payments.
- Agreed that the current Income Tax treatment is less problematic than the current CGT treatment.
- Considered that the current treatment of stablecoins for Corporation Tax (CT) creates uncertainty for companies. It is difficult to determine the tax position with confidence, resulting in economically similar transactions being taxed differently.
- The chargeable gains treatment is currently the default when no other regime clearly applies, but it was considered to be overly complex.
- There was general agreement that either treatment as a loan relationship but not as a financial asset, or as a financial asset that is not a loan relationship, was practical, with the latter option being more popular.
- Broadly supported aligning the tax definition of a stablecoin with the regulatory definition.
- Overwhelmingly considered that non-sterling stablecoins should be included in any changes, noting that as USD-denominated stablecoins currently dominate UK usage, confining the changes to sterling-only coins would have a limited effect.
- Raised concerns about the following issues that the government has stated it will take into consideration:
- Uncertainties over treatment for VAT and stamp duty on shares.
- Situs rules for Inheritance Tax (IHT) and CGT.
- Employment taxes where remuneration is paid in USD stablecoins.
- The application of Making Tax Digital (MTD) and whether current systems will cope with the high transaction volumes associated with crypto investment, without effective data aggregation tools being available.
Interest-like returns
There were mixed views on the contrasting treatment between interest-like returns generated from stablecoins and interest on fiat currency debt, such as the Personal Savings Allowance (PSA) for interest on fiat savings and the Trading and Miscellaneous Income Allowance (TMIA) for interest-like returns on stablecoins.
Individuals
- Respondents considered that the current differences in treatment can create unfairness, complexity and/or distortions when stablecoin arrangements are economically similar to fiat lending.
- Some noted that it would be more logical for interest-like returns on stablecoins to be eligible for the PSA.
- Others considered that the current treatment as miscellaneous income is well understood and simple to apply, meaning fewer individuals need to be within Self Assessment.
Companies
- Respondents said the current treatment whereby interest on fiat lending falls within loan relationships, but stablecoin returns may be taxed as miscellaneous income, is less coherent than for fiat lending. It has wider effects on group relief and the Corporate Interest Restriction (CIR) regime.
- Respondents highlighted concerns about the inconsistent application of Withholding Tax (WHT) across commercially equivalent fiat currency and stablecoin lending transactions.
- It was also noted that difficulties relating to WHT could occur where an overseas jurisdiction treats the payment differently, potentially making it difficult to obtain credit for WHT.
Next steps
The government has decided to bring forward legislative changes to treat eligible stablecoins more like money for CGT, Income Tax and Corporation Tax. The changes will be included in Finance Bill 2026-27.
A policy paper and draft legislation have been published alongside the call for evidence outcome.
From 6 April 2027 for individuals and trustees, and 1 April 2027 for companies, it is proposed that:
- Eligible stablecoins will be defined as cryptoassets that maintain a stable value in relation to a particular fiat currency, with fiat currency or other assets held for the purposes of supporting that stable value.
- Individuals and trustees will:
- Be exempt from Capital Gains Tax on disposals of eligible stablecoins
- Have their interest-like returns in relation to eligible stablecoins treated as savings income for Income Tax.
- For Corporation Tax purposes, eligible stablecoins will be treated as a money debt:
- Where they are lent, this will be treated as a transaction for the lending of money, effectively bringing eligible stablecoins and transactions involving the lending of eligible stablecoins into the loan relationship rules.
The government is continuing to assess the application of withholding tax to the lending and borrowing of stablecoins.
Useful guides on this topic
How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits taxable? Can you obtain tax relief if you make losses on Bitcoin? Gains on transactions in cryptoassets are potentially taxable in the same way as other investments.
Loan relationships: Is a balance within the rules toolkit
This toolkit provides a summary/overview to indicate whether a balance will fall within the loan relationship rules.
Loan relationships: Start here
What is a loan relationship? How are profits and losses made from loan relationships taxed? What is the difference between a trading and a non-trading loan relationship? What could restrict relief under the loan relationship rules?
External links
Call for evidence outcome: The Taxation of Stablecoins