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Tax effect - Bitcoin legal tender in El Salvador

Now that bitcoin is legal tender in El Salvador, does this change the tax treatment of it in the UK?

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On 9th of June, the Salvadoran Congress voted 62 out of 84 votes in favour of making bitcoin legal tender in the country, does this change the tax treatment of bitcoin in the UK?

For individuals, I understand that capital gains tax is still charged on any foreign currency held outside of a foreign bank account (unless the currency is held for a holiday). The treatment for individuals is therefore likely to remain unchanged, unless presumedly it is posisble to store your bitcoin in an El Salvaorian bank account. 

For companies, HMRC have rejected the loan relationship rules as being applicable to bitcoin as it does not accept that bitcoin is money. Foreign exchange gains and losses, however, are treated under the loan relationship rules. Exchange gains and losses are defined by CTA09/S475 whcih states that they are profits/losses derived from currency flcutations against the pound. There does not appear to be a more specific definition of "currency" and therefore presumedly it means any legal tender of a country. It would therefore appear (or could be argued) that the loan relationship rules would now apply to bitcoin.

The intangible fixed asset regime may apply to some companies who carry out activities with cryptocurrency, but does not apply to monetary assets as defined by accounting standards. FRS102 doesn't define cash beyond "Cash on hand and demand deposits" and therefore presumedly it also means any legal tender of a country. It would therefore appear (or could be argued) that the IFA rules would no longer apply to bitcoin.

I don't know if gold is still legal tender in any country, and whether this would shed any light on whether bitcoin's tax treatment may now change. 

Replies (11)

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By Duggimon
11th Jun 2021 14:00

I don't think El Salvador has the power to revise the UK government's treatment of cryptocurrency, however you frame it.

I would imagine and bitcoin held in an El Salvador bank account will continue to be treated the same way as bitcoin held anywhere else.

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By chrisacc1985
11th Jun 2021 14:19

I take your point, and agree that HMRC would be very reluctant to change it's approach based on what has happened in El Salvador.

If the legislation as currently enacted in the UK now determines a different treatment, however, that is the treatment that should be applied.

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By Hugo Fair
11th Jun 2021 15:52

According to BoE, "Legal tender has a narrow technical meaning which has no use in everyday life. It means that if you offer to fully pay off a debt to someone in legal tender, they can’t sue you for failing to repay."

So the concept can have nothing to do with UK tax legislation or indeed any attempt by HMRC to interpret that.

Another country's decision of this nature therefore has no impact over here.

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By chrisacc1985
11th Jun 2021 17:09

What would the relevant definitions of "cash" and "currency" be then? What constitutes them can't just be at the discretion of HMRC.

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By Hugo Fair
11th Jun 2021 17:28

Sorry, but that's as logical as suddenly asking me what's the definition of other financial terms. All I've pointed out is that 'legal tender' (as per your quoted article) has nothing to do with UK tax legislation.

Others on here are more expert on matters of legislation, so could possibly give you specific examples ... but I'm fairly sure that wherever terms like 'cash' are used within legislation there will either be a definition of the term or a reference to where (in other legislation) the relevant definition can be found.
[Note: one of the 'interesting' outcomes of the way UK develops its legislation is that the same term may have different definitions within different pieces of law].

But none of this changes my earlier point ... or the fact that the recent El Salvador decision has no automatic impact on UK tax legislation.

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By chrisacc1985
11th Jun 2021 18:40

Asking for a definition of currency and cash is not arbitrary, it is very pertinent and is the crux of the query.

As I said in the original post, the legislation doesn't define currency.

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By Mr_awol
11th Jun 2021 21:16

I think you are confusing ‘legal tender’ with official (eg state backed) currency.

El Salvador could (if they wished) make grasshoppers ‘legal tender’ but it wouldn’t make them currency, not would it affect the UK tax treatment

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By chrisacc1985
12th Jun 2021 06:52

Useful distinction, thanks.

As TaxDragon points out, El Salvador may make bitcoin the official currency in the coming months.

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By Mr_awol
12th Jun 2021 09:24

Still wouldn’t make a difference TBH if they did.

They don’t have their own currency now (they use USD) and if they chose to adopt BTC there’s no way they’d want to (or would be able to afford to) underwrite it.

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By Tax Dragon
12th Jun 2021 10:05

So, to follow the OP's line of questioning... where's the definition of "currency" that requires it to be underwritten by a national government? (Especially since that doesn't seem to have been an express consideration of the Cryptoasset Taskforce when it debated the issue.)

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By Tax Dragon
11th Jun 2021 20:35

The way I read the news, in 3 months El Salvador will effectively adopt bitcoin as its official currency. Although not all traders will have to accept payment in btc. And accounts etc will still be drawn up in USD - slightly odd that, imho.

I don't think it necessarily has any impact at all in the UK. But quite possibly (even probably) confirmation either way will come from on high before the 3 months is up.

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