Are you interested in selling your work as a Non-Fungible Token (NFT)? Or are you ready to begin investing in NFTs? In any case, it is critical to understand the magnitude and timing of your tax exposure, as well as the records you must keep.

Basic tax treatment

NFTs are a type of cryptocurrency that is recorded on a blockchain. If you are interested in buying or selling NFTs, it could be because you want to create your own NFT or you want to start investing in NFTs.

HMRC will usually classify an NFT as a capital asset held for investment purposes, just like any other crypto asset. This means that the sale or disposition of an NFT will almost always result in a capital gain or loss for tax purposes. Capital Gains Tax is levied on capital gains (CGT). If you are creating your own NFTs, you must consider whether the NFT is subject to capital treatment or is a trading activity that is taxed and accounted for differently.

Capital gains may occur when you:
• Sell an NFT
• Exchange an NFT for a different type of crypto asset token including other NFT’s and cryptocurrencies
• Give an NFT away to another person (excluding a spouse or civil partner)

The gain on the disposal of an NFT is typically the NFT’s value at disposal in £GBP less:
• The cost of purchase
• Transaction fees
• Advertising for a purchaser or a vendor

The specific method of taxation and the amount chargeable differ depending on whether the investment is held by an individual or within a structure such as a limited company – see below for more information on the distinction.

Individuals

Net gains of an NFT after deducting any available capital losses in the tax year ending 5 April must be reported on a self-assessment tax return. Any tax owed is due by the 31st of January following the end of the fiscal year.
Individuals in the United Kingdom are also entitled to an Annual Exemption (AE) from CGT. The amount for the 2021/22 tax year is £12,300.

Companies

Disposals or sales of an NFT within a company structure will be reported on the corporation tax return of the company. Any resulting tax is due 9 months and 1 day after the end of the company’s fiscal year.

The gain is subject to corporation tax, which is currently levied at a rate of 19%. Companies cannot access the AE.

Traders / Creating your own NFT

In some cases, HMRC may consider NFT activity to be a trade; this may be relevant if you want to set up your own NFTs. Whether or not the buying and selling of NFTs constitutes a trade will be determined by a number of factors, including, but not limited to:
• Frequency
• Level of organisation
• Intention

Speak with one of our team if you are creating your own NFTs, as our expertise can help you determine whether your activity is a trade or not for tax purposes.

Record keeping

HMRC state that it is the taxpayer’s responsibility to keep separate records for each NFT transaction.
Such records include:
• Identification of the NFT
• Dates of transactions
• If they were bought or sold
• The number of units involved
• Values of the transactions £GBP (at the date of the transactions)

If you have a lot of NFT or cryptoasset transactions, it might be advisable to make use of a UK tax compliant cryptoasset-tracking software to record your gains.

If you need professional advice in connection with NFT’s or a cryptocurrency asset, please get in touch with one of our team.