Example 1D
Tax position for staker where CAPITAL REWARDS received and there is NO transfer of beneficial ownership
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Tax position for staker where CAPITAL REWARDS received and there is NO transfer of beneficial ownership
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See our other staking examples to show the different tax positions of this same scenario:
- income reward - transfer of beneficial ownership
- income reward - NO transfer of beneficial ownership
- capital reward - transfer of beneficial ownership
Bought 10 BTC for £100,000 in October 2020
Staked 10 BTC staked in March 2022 for indefinite period, when worth £30,000 per BTC
Staking reward of 5% pa receivable at the end of stake in BTC
10.5 BTC is received when stake ended in March 2023 when worth £20,000 per BTC (10 BTC principal and 0.5 BTC reward)
No other acquisitions or disposals of BTC (assume matching rules not relevant for simplicity)
Assumed that beneficial ownership IS NOT transferred upon entry
The CGT (capital gains tax) free annual exemption is already used and the CGT rate is 20%, as income is more than £50,270.
No redemption tokens are received upon staking; therefore a ‘right to receive a future quantity of tokens’ is treated as received.
Sold 10.5 BTC for £525,000 fiat sterling in March 2024
No capital gains tax disposal of the 10 BTC. No tax consequences of entering the staking activity.
It is necessary to estimate the present sterling value of the BTC capital reward. Although it is a set return of 5% pa; because the term of staking is open-ended, the number of BTC to be received in the future as the reward is not known and is not ascertainable.
The taxpayer intends to only stake for 6 months, so they decide to estimate the reward to be 0.25 BTC. The current sterling value of 0.25 BTC is £7,500.
Although there is no HMRC guidance on this point, it is likely this should to be treated as a part-disposal of the 10 BTC staked. Therefore in the capital gains tax calculation for the capital reward, the proceeds in the capital gains tax calculation will be £7,500 and a proportion of the acquisition cost of the 10 BTC will be deducted based on the standard part-disposal formula:
A / A + B
A = the disposal proceeds of £7,500
B = the market value of the 10 BTC retained of £300,000.
Therefore 2.4% of the £100,000 acquisition cost can be deducted from the £7,500 disposal proceeds. In this example, the capital gain would be £5,061 (£7,500 less £2,439).
Capital gain of £5,061 realised in the 21/22 tax year, upon staking 10 BTC in return for a capital reward.
£1,012 CGT (£5,061 at 20%) is payable by 31 January 2023.
The £7,500 estimate of the capital reward has been subject to tax at which point there is no idea when the reward will be received (since the staking term is indefinite and the reward can only be received upon exit).
The acquisition cost of the 10 BTC in the S104 pool has been reduced by £2,439 to £97,561.
Upon staking the tokens, a ‘Marren v Ingles right' to receive an unascertainable future quantity of capital reward tokens’ is received. This is a right to receive the estimated 0.25 BTC capital reward (however we do not know it is 0.25 until the stake is ended.
The acquisition cost of this ‘Marren v Ingles right' is £7,500. When the stake is ended, this right will be disposed of in exchange for the receipt of the capital reward tokens (which we know with the benefit of hindsight will be 0.5 BTC).
No tax consequences of exiting the staking activity.
The stake was for a year, rather than the estimated 6 months, therefore 0.5 BTC was received as a reward, rather than the 0.25 BTC which was estimated and subjected to CGT upon entering the stake. The market value of the 0.5 BTC received in March 2023 is £10,000.
There is a further capital gain of £2,500 in 22/23 upon receipt of the reward (disposal proceeds of £10,000 less the acquisition cost of £7,500). £500 CGT is payable (£2,500 at 20%) by 31 January 2024. £7,500 of the reward is taxed in 21/22 when the BTC was staked and the balance of £2,500 is taxed in 22/23 when the stake was ended.
The 0.5 BTC received as a reward has an acquisition cost of £10,000. Accordingly, 0.5 BTC with acquisition cost of £10,000 is added to the S104 pool for BTC.
Capital gain of £415,000 (£525,000 less original acquisition cost of £110,000) in the 23/24 tax year.
CGT of £83,000 (£400,000 at 20%) to pay for 23/24, due for payment to HMRC by 31 January 2025. In addition to this, £1,500 CGT was paid on the capital reward upon staking in 21/22 and £500 CGT was paid when the capital reward was received upon ending the stake in 22/23.
In total £85,000 CGT is paid on the 10.5 BTC on a total capital gain of £425,000. However, cashflow is improved where there is no transfer of beneficial ownership as half of this CGT did not have to be paid at the point of entering the staking activity in 21/22 as shown in .