HMRC have made only limited comment on NFTs in relation to UK tax, in particular, the tax treatment for Inheritance Tax (IHT), Capital Gains Tax (CGT) and income tax.
For instance, in CRYPTO22200 HMRC say – “Non-Fungible Tokens (NFTs) are separately identifiable and so are not pooled” as it relates to allowable acquisition costs and how any gain or loss would be calculated on disposal. This is logical since each token is unique, unlike interchangeable assets such as bitcoin.
The existing and rapidly expanding volume of HMRC published guidance in the cryptoassets space may well be used as the basis for future HMRC guidance but we cannot assume that will be the case.
NFTs may be taken as evidence of the ownership of an asset, most likely digital (intangible) assets, although, in addition, we understand they may be capable of conferring ownership of physical and other intangible (non-fungible) assets. Digital asset examples include artworks, music and collectables, videos, logos, presentations and websites, in fact, anything which can be digitally stored.
There won’t be a one-size-fits-all approach to NFTs, in fact each asset / disposal will need to be considered on its merits. Importantly (we refer here to our blog on cryptoassets dated 11 July 2019) how digital assets are treated for tax purposes depends on whether the taxpayer is actively trading, whether they are holding the asset for personal investment or have been awarded the NFT in lieu of salary or benefits.
The tax residence and domicile of the taxpayer will be important here is it relates to their tax exposure in the UK. Taxpayers should also retain adequate records of how they obtained and disposed (if applicable) of the NFT. Taxpayers should ideally obtain tax advice before they dispose of assets, although we realise and understand that this is not always practical or possible. In this rapidly evolving and interesting area we would be delighted to assist and advise both private clients / companies on their NFTs, or cryptoassets in general.