Overview of response

We welcome HMRC’s recognition that stablecoins are expected to form a key part of the future payments ecosystem, and the steps taken through this call for evidence  to clarify specific tax rules for their treatment.

We have previously argued that for stablecoins to be used for payment purposes they will need to be treated as such within the taxation framework, acknowledging their function as a payment instrument. Stablecoins function as payment instruments, akin to traditional forms of money (including e-money). We therefore strongly support the introduction of the proposed Capital Gains Tax exemption for qualifying stablecoins used in payments.  This is a critical component of a UK policy environment that supports the development and adoption of regulated stablecoins, which can support growth and productivity in the UK economy.

Capital Gains Tax exists to tax genuine economic gains through increases in the real value of an asset held as an investment. Stablecoins designed and used as payment instruments do not exhibit this characteristic. By definition, a stablecoin pegged to fiat is designed to maintain a stable value relative to that currency. A retail transaction using this type of stablecoin does not realise a monetary gain, so treating this as a speculative instrument does not reflect the nature of the transaction or intent of the user. Stablecoins used in this context are functionally equivalent to cash.

We support Option 1 (the treatment of certain stablecoins as exempt assets for Capital Gains Tax purposes) as the most administratively simple, economically coherent, and proportionate solution.

This would bring the tax treatment of payment stablecoins into line with their functional reality, support the UK's ambition to be a global hub for financial technology, and remove a barrier that currently discourages individuals and businesses from using stablecoins as a legitimate and efficient means of payment.

Introducing a threshold limit (as per Option 2) undermines the principle of qualifying stablecoins operating as a cash equivalent, and would result in a disproportionate tracking and recording obligation for consumers using stablecoins for retail purposes, to the extent that adoption risks being significantly impeded.