Cryptocurrencies are still in their beginnings, and cryptocurrency legal status is very unclear. However, over the past few years, digital currency is becoming more mainstream, with significant investment firms and politically exposed persons buying Bitcoin and other established cryptocurrencies. 

Due to virtual currencies being more popular than ever, governments are increasingly considering how to regulate them.

Although cryptocurrency trading is still quite risky due to its regulatory uncertainty, Bitcoin is legal in the UK. On the other hand, Bitcoin ATMs are banned in the UK.

As in most countries, the UK has no specific cryptocurrency regulations governing digital assets, but the UK government is slowly developing its approach through case law. Crypto assets are not recognised as currency but are considered property.

So what does that mean?

Crypto asset regulations in the UK

In the UK, cryptocurrency regulations are broken into pieces, meaning that there is no single document that outlines the overall regulatory requirements for all participants. The main goal of the UK regulators is to prevent scams when creating and attracting new customers. 

Even though any regulation would have to be changed quickly, the United Kingdom Financial Conduct Authority (FCA), HMRC and the Bank of England (BoE) joined together and published guidelines that would construct the foundation for Bitcoin regulations in the region.

Although UK cryptocurrency regulations allow users to buy and sell Bitcoin, due to recent regulatory moves by the UK’s financial institutions, trading of crypto derivatives is banned. 

The FCA is the primary UK government regulatory body for cryptocurrencies in the United Kingdom because all entities that are part of the crypto sector in the country must obtain a license before setting up a shop. 

How do UK regulators define crypto assets?

E-money is electronic money which would be a digital version of the US Dollar or British Pound, for example.

Security coins are digital tokens similar to financial securities, such as bond/equity instruments. 

Unregulated tokens include utility tokens and exchange tokens.

An asset class is a group of assets that enjoy similar characteristics and are subject to the same laws and regulations. 

How does the FCA regulate the crypto market?

Because of their reputation for supporting innovation and the open way they allow initial novel products to be tested in real market settings, the FCA is a go-to regulator for many new innovative products and services. 

 

As the Financial Conduct Authority has undertaken a series of meetings to discuss the regulatory approach to virtual currency, it has confirmed that its initial research shows that regulation can often help to support growth. 

 

Consequently, the Authority held a series of “CryptoSprints” sessions to consider what regulatory approach would make potential benefits to developing virtual currencies in the future. 

Anti-money laundering purposes

Currently, the FCA’s function is to focus on registering firms to prevent money laundering, a global financial crime. However, the majority of cryptocurrencies and similar crypto-native businesses are unregulated. 

That means that exchange tokens, such as Bitcoin, are regulated in the UK only for money laundering purposes.

What is anti-money laundering?

Anti-money laundering, also known as AML, is the process of monitoring and verifying transactions to determine if they are being conducted for illegal purposes, including terrorist financing. Most companies follow anti-money laundering compliant regulations. 

 

They must, however, also be sure that all members of their business, including partners and customers, follow the regulations, as well. International business ethical considerations require a due diligence clean sweep on all parties in a transaction. 

How does anti-money laundering apply to crypto?

Despite calls from regulatory bodies, money laundering is a worldwide issue, impacting both fiat currency and cryptocurrency. 

Such monetary controls are exacerbated by large crypto exchange scams and hacking incidents, foiling anti-money laundering (AML) legislation intended to curtail supply flows to financing crypto schemes. 

AML regulations are used to prevent criminals from turning unlawfully received cryptocurrency into cash. 

Is trading cryptocurrency legal in the UK?

Trading cryptocurrency in the UK using a regulated trading platform is perfectly legal, although the risk is significant. In this sense, it is necessary to understand this before making any Bitcoin purchases.

The returns may be higher, but when getting involved with digital currencies, it is wise to avoid inadequate understanding and ensure you can handle the uncertainties involved. 

Where can I purchase Bitcoin legally in the UK?

According to critics, Bitcoin and other cryptocurrencies are risky digital assets. Therefore, we bet you could lose all or most of your money relatively quickly. 

There’s nothing legally preventing you from buying and selling cryptos if you declare any gains in the UK and pay relevant taxes. 

If a crypto asset trader will use an exchange, the least risky way is to use a crypto exchange on the FCA’s crypto asset register. All these cryptocurrency exchanges may offer security tips and private keys, which could also allow for consumer protection when you trade cryptos.

An email exchange system or a hardware wallet allows us to keep our money safe. You will get your unique personal key to be accountable, and you are the only one who can control it. Here you can learn how to buy Bitcoin with a credit card.

Do you have to pay cryptocurrency taxes in the UK?

For most crypto investors, the answer is yes. In the UK, there are no specific tax rules per se, so cryptocurrency investors will either be taxed based on events and transactions or charged with Income Tax or Capital Gains Tax.

Income Tax is usually applied to those who buy, sell or receive cryptocurrency through a trade. So-called “day-traders” are probably the most obvious example – someone who actively buys and sells crypto assets to create short-term profits.

If you are buying, holding, or selling cryptocurrencies on your own, you are considered to be undertaking an investment activity. Because of that, you will have to pay Capital Gains Tax. 

You have an authorised allowance of capital gains that are non-taxed for individuals up to £12,300 in capital gains across all capital assets for the April 6, 2021 – April 5, 2022 tax year.

FAQ

Is it legal to mine Bitcoin in the UK?

UK authorities have not banned Bitcoin mining. However, you’ll have to pay a customs fee. HM Revenue and Customs applies an Income Tax and National Insurance tax on crypto that is obtained from mining. An income tax does not apply to airdropped tokens. 

Which cryptocurrency exchanges are legal in the UK?

FCA-registered virtual asset service providers, such as CoinBase, eToro, and Revolut are the most popular crypto exchanges. However, there are even more exchanges that are legal in the UK.

What else should I know before I start trading?

If you are seriously considering cryptocurrency investment options, it makes sense to understand how to create your own cryptocurrency wallet or purchase a hardware cryptocurrency wallet to safeguard your assets. 

Your focus as you gain more knowledge will naturally shift to different aspects of the Bitcoin network, including the incorporation of blockchain technology, security tokens, decentralised finance (DeFi), liquidity mining, staking, and yield farming in crypto. 

If you want to stay up to take some serious steps and learn everything in the field of cryptocurrencies before your first Bitcoin purchase, visit tradecrypto.com.