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UK lists ‘cryptoassets’ under Investment Manager Exemption signaling ripple effect for funds

The United Kingdom has passed a new rule to include “designated cryptoassets” in the list of investment transactions, qualifying them for Investment Manager Exemption.

According to the text, the rule will apply to transactions entered within the 2022/2023 tax year and will come into effect on January 1. Furthermore, the latest regulation will affect all transactions within the accounting periods after December 19, according to the memo published by His Majesty’s Revenue and Customs (HMRC).

The regulation fails to include a proper definition of “designated cryptoassets,” but the Investment Transactions (Tax) Regulations, it can be inferred that Parliament views them as a class of investment transactions. The implication of applying this definition in providing digital asset services while tokens are in possession of non-U.K. residents means the rule will not apply.

Including digital currencies under the Investment Manager Exemption is considered a massive win for overseas investors looking to invest in the U.K. The exemption allows foreign investors to appoint managers without facing stringent U.K. tax implications.

“This will provide certainty of tax treatment to U.K. investment managers and their non-U.K. resident investors who are seeking to include cryptoassets within their portfolios, and we anticipate that this will also encourage new cryptoasset investment management businesses to base themselves in the U.K.,” said HMRC.

“One of the reasons for the U.K. attracting non-resident investors (including hedge funds) is their ability to appoint UK-based investment managers without creating a risk of U.K. taxation for themselves,” reads a government directory.

Other sweeping changes in the UK

U.K. regulators are introducing a series of new rules to govern the local digital asset industry in the country. Top of the list is an amendment to the Financial Service and Markets Bill that seeks to bring the sector under the purview of the Financial Conduct Authority (FCA).

Another key area that regulators are trying to control is the promotion of digital assets, with the Advertising Standards Authority (ASA) and the FCA making significant strides. The FCA has previously stated that it is looking to drastically reduce the number of individuals keen on investing in high-risk financial products that do not reflect their risk appetite.

Flowing from this, the ASA has flagged down the advertisements from several digital asset firms for failing to disclose the associated risks to consumers. Last week, the ASA ruled that non-fungible tokens (NFTs) fall under the ambit of financial investments, and advertisements relating to them must provide full disclosures.

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