British investors will be unable to buy new cryptocurrency exchange traded notes within their ISAs from April 6, after a ruling by HM Revenue & Customs (HMRC) reclassified the products.
The decision creates a barrier to holding crypto ETNs inside mainstream tax-advantaged accounts, despite Rachel Reeves’s stated ambition to make the UK “a world-leader in digital assets”.
Several investment platforms currently allow customers to hold crypto ETNs within standard stocks-and-shares ISAs.
From the start of the new tax year, however, new purchases will no longer be permitted within that wrapper.
HMRC determined in October that crypto ETNs would qualify only for Innovative Finance ISAs rather than stocks-and-shares ISAs.
Innovative Finance ISAs are typically used for peer-to-peer lending and similar investments and are not covered by the Financial Services Compensation Scheme.
While 57 firms are registered with HMRC to offer Innovative Finance ISAs, these are largely peer-to-peer lenders, property finance providers and crowdfunding platforms.
No investment platform currently holds authorisation to offer both crypto ETNs and Innovative Finance ISAs, meaning there is no practical route for investors to place the products inside an ISA from April 6.
HMRC ruling will prevent new crypto exchange traded notes being held in stocks-and-shares ISAs from April 6
|
GETTYJason Hollands, managing director at Evelyn Partners, said: “This is a mess all round.
“All the regulation points in different directions and the whole thing sounds like it’s going to be a damp squib.”
He said existing Innovative Finance ISA providers would have little commercial incentive to expand into London Stock Exchange-listed securities because it would require different operational infrastructure.
Georg Bauer, head of investment and product for global platform solutions at Fidelity International, said the approach “challenges the intention of allowing regulated access to crypto assets and protecting consumers from greater risk in using unregulated products”.
Rachel Reeves has been accused of cooking up a ‘Benefits Budget’ | GETTY
He called on ministers and HMRC to reconsider and allow access through stocks-and-shares ISAs, which are more widely used by retail investors.
The restriction comes as crypto ETNs have already faced uneven availability across UK platforms.
Major providers including Hargreaves Lansdown and AJ Bell do not currently offer crypto ETNs, although Hargreaves Lansdown is preparing to introduce them by June.
Other platforms, including Interactive Investor, Freetrade, Revolut, Trading 212, Saxo and Moneyfarm, currently provide access to the products.
HMRC confirmed that investors will not be required to sell existing crypto ETN holdings
|
GETTYHMRC said its decision reflected the “innovative nature” of crypto ETNs and the developing state of the market, adding the approach “strikes a balance between extending investor choice and managing risk responsibly”.
The Government has indicated it will keep the treatment of crypto ETNs within tax-advantaged accounts under review and may consider permitting them within stocks-and-shares ISAs at a later date as the market develops and consumer understanding improves.
HMRC confirmed that investors will not be required to sell existing crypto ETN holdings already held within stocks-and-shares ISAs after April 6.
The tax authority told the Financial Times that forcing sales “could risk some level of market disruption and impose disproportionate operational challenges on ISA managers”.