I had a quick search on the sub for UK Tax threads, couldn’t find much within the last year so I’ve come to ask about a specific use case.
- I have cash holdings in fiat (Pounds Sterling) which are not earning much interest
- I want to exchange the fiat cash for a stablecoin pegged to fiat (such as DAI, which is pegged to the USD - I am aware it is not backed by USD ). I could do this on something like coinbase pro
- I want to then lend the stablecoins on platforms like Compound
- I expect to eventually use the stablecoins to make purchases either in crypto or in fiat once converted back.
I found two articles on UK tax laws re-crypto assets with a breakdown of how to calculate capital-gains-tax in a few scenarios here for a very neat breakdown by use case and this one - both from November 2019.
Given my plan above, I feel like all I’m doing is effectively
- Foreign Exchange of currency from GBP to USD (in the form of a pegged stablecoin)
- Lending USD (stablecoin)
- Receiving interest in USD (stablecoin)
- Spending USD as a stablecoin, or foreign exchange of USD (stablecoin) back to GBP fiat and spending GBP fiat
I won’t be speculating on the price of any crypto asset, because the only crypto I will hold will be pegged to the USD. If this whole thing is treated as an asset trade and taxed as Capital-Gains, does that mean I should be checking to see what the difference in rate of exchange is between USD/GBP at time of exchange and eventual time of exchange back and paying CGT based on that? Presumably one doesn’t normally need to do this when exchanging fiat for fiat and back again?
Do I need to pay any specific tax on the interest earned whilst lending the stablecoin? Would this be taxed as income? Does this also mean I get taxed twice (on the interest earned, and the FOREX change when going back to GBP fiat?
TBH, I’m not planning on doing this for any huge amount at least to start with, maybe £1000 GBP. I am a higher rate tax payer for income (40%) , so I’m keen to know what personal allowances get impacted by this, and whether it’s worth it all to achieve the interests rates available for lending via apps like Compound compared to fiat savings accounts and other alternatives like P2P.
Thanks for any advice help!