Purchasing assets using crypto currency gains

We have had a number of clients come to us with issues after trying to purchase assets using cryptocurrency gains. The problems that our clients have encountered include:

In this article, we go through all of those challenges in detail and how we helped our clients to overcome these problems. If you are looking to purchase assets with cryptocurrency gains, it’s best you talk to a specialist adviser who will be able to help you overcome the number of issues involved.

 

Legal advisors unwilling to engage

The problem: Our client was purchasing a home with cryptocurrency gains, but a number of legal advisers he approached were unwilling to engage with him.

Their concerns were that the cryptocurrency platforms are unregulated and therefore they cannot confirm that they meet Money Laundering checks.

The solution: Although this may seem worrying if you are trying to purchase something with crypto gains, the affected client did manage to find firms that were happy to engage with him as long as he could present statements and documents evidencing the transactions. As their accountant, we were also able to present confirmation of declarations being made for tax purposes.

We also confirmed with the firms rejecting the client that they were not refusing the business due to a legal obligation, it was more their individual firm’s policy with a view to risk and the feeling it was too great.

 

Capital Gains Tax payable if needing to sell crypto to fund a cash purchase

The problem: One of our clients sold Bitcoin as a start for raising funds to buy a house but soon had to stop doing so because the sale of Bitcoin caused a huge Capital Gains Tax (CGT) situation. They hadn’t considered that they had to turn the crypto into cash and as a result would incur CGT.

The solution: They had to re-consider that this is not the best way to provide funds to finance a house purchase, but rather raise capital using available cryptos as collateral against a loan in Fiat money like GBP or USD.

The advantage of this is that the client can continue to hold their cryptos without selling them and any price gains in the long term will offset the interest charges.

The downside however is, if the price of cryptos fall during the loan period, the amount held by the loan providers as collateral will have to be topped up. Although this is apparently done successfully in other countries today, it is a relatively new concept in UK and perhaps may never be accepted by the FCA and other authorities in UK. 

 

External factors such as the FCA which can have an impact on the currency

One of the biggest and most popular exchanges, Binance.com, was forced in 2022 to stop taking new deposits and withdrawals by the FCA, causing a panic sale of Binance coins (BNB). We had clients who had to sell BNB at the wrong time, incurring some losses unnecessarily.  They had to open new accounts with other exchanges unnecessarily as a result.

Once the FCA resolved the issue they had with Binance, some of the Binance coins (BNB) were purchased back but the client’s that had been affected by this, overall lost money. 

 

Onerous Bank Money Laundering rules resulting in delays

The problem: If you have a large portfolio of cryptos and you’d like to convert this into cash, you will need to transfer a significant amount of cash into your bank account.  This can cause problems with the banking system due to long standing concerns about cryptos. 

This isn’t an easy process (though not impossible), due to current Money Laundering rules set by the banks. The sale of large amount of cryptos has to be done through the Over the Counter (OTC) process like sale of OTC shares. Large sales for converting cryptos to pound sterling at crypto exchanges is not a real problem, but the transfer of large amounts of proceeds into a bank can be an issue. 

The solution: There is no real solution to this one, but clients have done this and made special arrangements successfully with their bank to ensure the path of least resistance was followed, but it is not a fast process and different banks might manage such transactions differently.

Some of our clients have failed to do this as they could not transfer the money fast enough before the crypto prices dropped below the levels they needed due to the bank restrictions, which certainly highlights how volatile the currencies can be.

 

If you have cryptocurrencies you would like to purchase assets with or turn into cash, talk to us. We’ve helped many clients over the years with the issues that arise with this.

Email enquiries@a4g-llp.co.uk or call 01474 853 856.