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Recap HomeCrypto Tax Guide (Lite)HMRC Cryptoassets Manual
  • A Technical Guide to Cryptocurrency Tax for UK Individuals
    • What are Cryptoassets?
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Cryptoassets?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income tax
      • VAT
      • Inheritance tax
      • Stamp Duty
    • How Much Tax Will I Pay?
    • New HMRC DeFi Guidance
      • Overview of HMRC guidance
      • 1️⃣Is the Reward Income or Capital?
      • 2️⃣Is Beneficial Ownership (BO) transferred?
      • 3️⃣Consider the Tax Treatment
        • Staker/Lender/Collateral Provider
          • Income Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1A
              • Example 2A
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1B
              • Example 2B
          • Capital Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1C
              • Example 2C
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1D
              • Example 2D
        • Borrower
    • Investor or Trader?
      • Badges of Trade Limitations
      • HMRC Approach
      • Court Cases involving Financial Traders
    • Capital Gains Tax
      • Calculating the Capital Gains Position
      • Disposal proceeds
      • Disposals to Connected Parties
      • Allowable costs for CGT
        • Exchange fees
        • Forks - affect on allowable costs
      • Capital Loss Claims
    • Income Tax
      • Financial trading income
      • Miscellaneous Income
      • Employment income
    • Fair Market Valuation
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🔄Trading Crypto to Crypto
    • 🛍️Purchases using Crypto
    • 🎁Gifts
    • 💍Spouse Transfers
    • 🎗️Gifts to Charity, CASCs & Bodies for a National Purpose
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
      • UK Employer
      • Overseas employer
      • National Minimum Wage (NMW)
    • 🚨Lost & Stolen Crypto
    • 🎲Gambling
    • 💧Liquidity Pools
      • Example - Liquidity pool
    • ⬆️Token Upgrades/Swaps
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 🔄REPOS
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮NFTs earned playing games
  • Record Keeping
  • Filing Your Self-Assessment
    • How to Register for Self-Assessment
    • How to Fill In the Tax Return
    • Submitting the Tax Return and Paying the Tax
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  • What are Reflections Rewards?
  • Income Tax
  • Capital Gains Tax

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  1. TRANSACTION TYPES

Reflections Rewards

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Last updated 3 years ago

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What are Reflections Rewards?

In general, ‘reflections’ tokens appear to pay the holder a reward (more of the same token) every time someone else makes a transaction in that token. The tokens are pre-determined to pay out this reward to holders (usually referred to as a tax on transactions).

Income Tax

Capital Gains Tax

The additional cryptoassets received a reflection reward will be subject to the capital gains tax regime when they are disposed of.

Acquisition cost

There is no HMRC guidance on the acquisition cost of non-taxable airdrops, therefore this remains an area of uncertainty.

It could be argued the acquisition cost is Nil, or the acquisition cost could be the market value of the tokens at the date of receipt, depending on the circumstances - see below.

If the smart contract is executed and the airdropped tokens are issued into one public address and then later they are transferred to the recipient it may be possible to argue that the acquisition cost of the airdropped tokens is the sterling market value at the date of receipt, but only if it can be argued that a ‘bargain made otherwise than at arm's length’. There is uncertainty as to whether or not a ‘bargain is made otherwise than at arm's length’ or not, when it is available to everyone. If it is not a bargain otherwise than at arm’s length, the CGT acquisition cost of the airdropped tokens would be Nil.

If when the smart contract is executed, the airdropped tokens are issued directly to the recipient, it will be Nil acquisition cost. As there is no corresponding disposal, the market value rule at Section 17 TCGA 1992 is disapplied and the actual amount paid for the airdrop (ie Nil) is the CGT acquisition cost where it is lower than the market value at the date of receipt).

It is most likely HMRC will treat the rewards as , rather than taxable miscellaneous income. This is on the basis that nothing was done by the holder in order to receive the reward.

If the taxpayer is a ‘’ in cryptoassets these rewards may be treated as trading income rather than miscellaneous income.

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financial trader
non taxable airdrops