Example 1B
Tax position for staker where INCOME REWARDS received and there is NO transfer of beneficial ownership
Staking with income reward
See our other staking examples to show the different tax positions of this same scenario:
Example 1A - income reward - transfer of beneficial ownership
Example 1C - capital reward - transfer of beneficial ownership
Example 1D - capital reward - NO transfer of beneficial ownership
Bought 10 BTC for £100,000 in October 2020
Staked 10 BTC in March 2022 for 1 year
Staking reward of 5% received monthly in USDC
10 BTC worth £300,000 in March 2022 when staked
10 BTC is un-staked in March 2023 when worth £200,000
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 BTC for £500,000 fiat sterling in March 2024
At point of entry
No capital gains tax disposal of the 10 BTC. No tax consequences of entering the staking activity.
At point of exit
No tax consequences of exiting the staking activity.
On receipt of income reward
HMRC guidance indicates this staking reward is an income reward (rather than capital). The indicators pointing to an income reward are:
the reward in known at time agreement made (ie 5% pa for one year)
the reward is paid periodically throughout the period of the staking (monthly)
the period of the lending is fixed and short-term (1 year fixed period)
Therefore the USDC tokens received monthly as the income rewards are subjected to income tax (treated as miscellaneous income) when they are received. The income is the sterling market value of the USDC at each date of receipt.
Let’s say each month’s reward receipt was worth £416, so the total income over the year was £4,992. If the taxpayer has no self-employment income in the tax year, there will be the £1,000 trading allowance to offset against this miscellaneous income.
The acquisition cost of the USDC tokens received as an income reward is £4,992. When they are disposed of there will be a capital gains or capital loss, depending on the further change in value. There is unlikely to be much of a gain or loss on stablecoins though due to the minimal fluctuation in value.
On sale of BTC for fiat
Capital gain of £400,000 (£500,000 less original acquisition cost of £100,000) in the 23/24 tax year.
CGT of £80,000 (£400,000 at 20%) to pay for 23/24, due for payment to HMRC by 31 January 2025.
In total £80,000 CGT is paid on the 10 BTC on a total capital gain of £400,000. 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.
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