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UK investors will be unable to buy cryptocurrency for their Isa from the start of the new tax year, in spite of chancellor Rachel Reeves’ pledge to make the UK “a world-leader in digital assets”.
Crypto exchange traded notes (ETNs) can currently be bought within mainstream stocks-and-shares Isas with some providers.
But HM Revenue & Customs ruled in October that, as of April 6, this would no longer be permitted. Crypto ETNs would instead be reclassified as qualifying investments for the little-used Innovative Finance Isa, an obscure wrapper not covered by the UK’s Financial Services Compensation Scheme.
However, the FT has discovered that no investment platform is currently authorised to sell both crypto ETNs and Innovative Finance Isas.
While 57 platforms are currently registered with HMRC to offer the Innovative Finance Isa, they are largely firms engaged in activities such as lending and crowdfunding. The modest uptake of the vehicle thus far has largely been in the field of peer-to-peer lending.
But no mainstream investment platform currently offers innovative finance Isas, and none has told the FT that they plan to do so.
“This is a mess all round,” said Jason Hollands, managing director of wealth manager Evelyn Partners. “All the regulation points in different directions and the whole thing sounds like it’s going to be a damp squib.
“Innovative finance Isas providers are nearly all P2P lending platforms, property lenders and a bit of crowdfunding and there is no reason for them to go into this area. It involves entirely different infrastructure to offer shares on the [London Stock Exchange] and it’s not their business model,” Hollands added.
Georg Bauer, head of investment and product for global platform solutions at Fidelity International, said “we believe [the government’s] approach challenges the intention of allowing regulated access to crypto assets and protecting consumers from greater risk in using unregulated products.”
“We would encourage the government and HMRC to reconsider this and allow access through stocks-and-shares Isas which are much more widely used.”
The lack of Isa access could further stymie the rollout of crypto ETNs, which have been hit by patchy availability and tepid demand, not helped by the price of bitcoin, by far the largest cryptocurrency, plunging 45 per cent since October.
Some of the largest platforms such as Hargreaves Lansdown and AJ Bell do not offer crypto ETNs, although Hargreaves is believed to be on track to introduce them by June at the latest.
However, they are available via platforms such as Interactive Investor, Freetrade, Revolut, Interactive Brokers, Trading212, Saxo and Moneyfarm, with at least some of these allowing investors to hold them within a stocks-and-shares Isa.
The government’s decision to allow crypto ETNs to be bought within stocks-and-shares Isas during the current tax year was made “to avoid disrupting existing investment”, according to someone familiar with its thinking.
HMRC said the ruling that crypto ETNs would be limited to innovative finance Isas from the start of the new tax year was driven by their “innovative nature and the fact this is an emerging market. This strikes a balance between extending investor choice and managing risk responsibly.”
It added: “The government will keep the inclusion of crypto ETNs in tax-advantaged accounts under review with a view to including them in the stocks-and-shares Isa at a later date as the market matures and as consumer understanding deepens.”
Despite some platforms warning investors that they will be forced to sell any crypto ETNs they hold within a stocks-and-shares Isa after April 6, HMRC told the FT that the ETNs “can remain in those accounts, as to require otherwise could risk some level of market disruption and impose disproportionate operational challenges on Isa managers”.