ABCounting Ltd

Tips & Advice

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NFT and tax

Is there tax on buying and selling NFT’s???

The short answer is yes!  But what is an NFT?  A Non-Fungible Token (NFT), is a way of owning the original version of some digital content (visual and/or audio).  Over recent weeks and months NFT’s have been attracting a lot of attention across the media and the creative community.  So given what we do at ABCounting we have been doing some digging (or should I say mining!) on their tax treatment.  At the time of writing this there is no official HMRC guidance on the treatment of NFT’s.  

Let’s start with a disclaimer… we cannot say whether NFT’s will make you your millions (if I knew that I would be sat typing this from my private island in the Maldives).  At the end of the day it is an investment that can go up or down, it is up for debate and the test of time whether or not the NFT bubble will at some point burst.

Most NFT’s are Ethereum (ETH) based, so in order to buy them you need buy ETH and store the crypto currency in your digital wallet.  You then connect your wallet to OpenSea or another NFT Marketplace and use the ETH to buy the NFT of your choice.

If the taxman (or taxwoman) treats NFTs as they do crypto-currencies, then technically there would be a tax point created when the NFT is bought and HMRC could view  the transaction as a disposal of ETH upon purchasing the NFT.  This means that you will need a £ valuation of your ETH on the day you buy your NFT.  Any gain you make between changing Crypto-currencies (or NFT’s) will be subject to tax, but how much…

If purchased through a Limited Company

  • Treated as an investment or intangible asset
  • Purchase not tax deductible
  • When you come to sell your NFT the gain will be taxable through Corporation tax at 19%

If purchased personally

  • When you come to sell them they will be taxable through Capital Gains Tax at 20%… but you can make use of the Annual Exempt Allowance (£12,300)
  • There is a risk that CGT rates will go up – America have just put up their CGT rates and we usually follow suit fairly quickly…

So long story short, if you are hoping to make short term gains <£250k then personal is the way to go.  But if CGT increases or your gain is >£250k then you may do better through the company.

For you creatives out there wanting to make your own NFT’s to sell, that is the subject for another blog…

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