If you are associated with the world of crypto assets, you must know the increasing popularity of the Non-fungible Token (NFT). There is not even a single day goes by that NFT is not in the limelight of news channels. According to recent divorce cases of celebrities, where they have given their amount of £666,530 to charities and the ex-spouse gives us the idea of how philanthropic NFT sales can raise to a whooping level. This also helps us to understand the popularity in the world of digital assets. People are now wondering what the tax on NFT is.
Moreover, the increasing popularity is working in a manner that people are now becoming more and more interested in earning the extra pounds through this. However, in the process of chasing popularity, there should not be any ignorance of the tax implications related to NFT. Where you will earn above a certain level the tax implication will come with the process. Further in the discussion of this article, we will delve into the points about what is NFT, how is it different from bitcoin, and what are the tax implications of NFT in the UK.
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What is an NFT?
As discussed earlier that NFT is the abbreviation of the Non-fungible token. It is referred to as a digital asset that is non-interchangeable and unique in nature. Collectables like artworks and relevant stuff are common examples of NFT. Everything that has the capacity to be saved digitally and has a good market value can come under this category.
If we talk about the physical collectables, stamps, and paintings, the value is intrinsic in this case. The matter of the NFT is just the same as the physical collectables in the case of being valuable. In the case of physically valuable items they are tangible, however, the digital asset shows ownership through the depiction of the token.
How is an NFT Different From Bitcoins?
Cryptocurrencies and bitcoins refer to the kind of currency that is decentralised digitally. You have the ability to exchange it or sell it in the market directly. This does not even require an intermediary. The case of cryptocurrencies and bitcoins is just similar. When it comes to data restoration, blockchain technology is a way to secure the data and the details of who owns the asset digitally. A little difference is observed in the case of NFT.
It is because of the uniqueness of the digital items and the relevant pieces of evidence will have to prove this factor as well. The main difference in simple words is that cryptocurrencies tend to be fungible whereas the NFT asset is non-fungible. This allows you to exchange the bitcoins from one to other because of the similarity.
What is the Tax on NFT in the UK?
According to the recent search, there has not been any specific legislation passed for the NFT in the UK. However, a general guideline about cryptocurrency and relevant assets is provided by the HMRC. Moreover, it is also explained by the HMRC that the NFT is entirely a different and unique entity of its own kind. Because of the fact that NFT is a digital asset, generally, the selling price is more than the purchase price. However, the tax on NFT is still there.
Since the absence of legislation is observed in this regard, it will have to be considered in the category of collectables or artwork. So the process of selling and buying with the related losses and profits will be according to the rules of the capital gains tax. Moreover, it is suggested to take it as an asset and the relevant taxes like the inheritance tax will also be taken into serious consideration.
The Bottom Line
Now that you have gathered a fair amount of information about tax on NFT, we can bring the discussion towards wrapping up. There is no doubt that NFT is considered an asset and since there is no unique legislation passed by the government in the UK specifically for NFT, the rules of the collectables will be applicable in this case too. We hope these few minutes of reading will help you to develop a better understanding of what is NFT and how is it taxed in the UK.
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Disclaimer: All the information provided in this article on tax on NFT, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.