Location of Cryptocurrencies – STEP versus HMRC

On the 3rd September 2021, The Society of Trust and Estate Practitioners (STEP UK) published guidance on determining the location of cryptoassets, providing an alternative view to that of HMRC’s published ‘Cryptoassets Manual’.

This creates a compelling counter-argument in how to determine the location of cryptoassets. If adopted by the English courts, this would have enormous ramifications in respect of taxation of cryptoassets.

What are cryptoassets?

The term cryptoassets covers a number of different types of digital assets, of which there are many.

The most notable being cryptocurrency, sometimes referred to as exchange tokens. The most well-known of these being Bitcoin, Ripple, Litecoin and Ethereum.

The importance of determining the location of cryptocurrency

Determining the location of cryptocurrency is important for tax reasons and particularly for Non-Doms as this determines whether any gains are foreign gains (and therefore capable of benefitting from the remittance basis of taxation).

It’s also important for inheritance tax in relation to the question as to whether cryptocurrency is deemed excluded property.

What is a Non-Dom?

Non-Dom stands for non-domiciled resident status, someone who lives and works in the United Kingdom, but under British Law has their permanent home in another country, therefore may not have to pay UK taxes on foreign income or capital gains.

The view by HMRC

HMRC takes the view that exchange tokens (cryptocurrency) are located where the beneficial owner is resident.

For this purpose, HMRC consider an individual to be UK resident if they are a tax resident under the statutory residence test.

HMRC Commented: ‘Cryptoassets are digital in nature, meaning that they do not have a physical location. It is still necessary to determine their location (often referred to as ‘situs’) for tax purposes.’ ‘Using the residency of the beneficial owner of the exchange tokens to determine the location gives a clear, logical, predictable and objective rule which can be easily applied.’

The alternative view by STEP

In comparison, in a note published by STEP, and leaning heavily on commentary by Professor Dickinson, STEP takes the stance that ‘looking at the principles that have been applied in the past to allocate a location to intangible property, a case could be made for allocating the location of cryptocurrency to the place where it can effectively be dealt with. This is, for example, the principle that has been applied to shares (and is normally where the share register is located).’

‘In the case of cryptocurrency, it can only be dealt with by the use of the private key and, arguably, its location should therefore be linked to the location of the private key or of the person who has control of the private key (who may or may not be the beneficial owner).’

Residence in these circumstances, STEP argue, should be based on common law rules rather than the Statutory Residence Test.

STEP commented: ‘Where there is no statutory provision (for example in relation to IHT), we would endorse Professor Dickinson’s suggestion that the location of the cryptocurrency should be determined by identifying the place of residence (where) the participation in the cryptocurrency system is most closely connected.’


Putting the STEP argument into context, rather than a cryptoasset being judged as located at the place where the beneficial owner resides, for instance the United Kingdom and therefore subject to UK tax, the location would be determined as where the private key is situated (essentially a password used to access and approve transactions) or the person who has control of the private key, such as a cryptocurrency digital wallet, a company’s software that enables you to track, send and receive coins through the blockchain, like a bank account.

Therefore, any gains would be treated as foreign gains if the private key or private key holder are located outside the United Kingdom.


It’s noted by STEP there are some nuances to their position and caution that ‘until there is a clear decision from the courts, taxpayers and their agents will need to decide what approach to take. ‘

STEP advise the use of the white space or additional information area of the tax return form for any individual filing an alternative position to HMRC’s guidance, and that ‘It should of course be expected that HMRC may not accept an alternative analysis and that a referral or appeal to the Tax Tribunal may be required in order to resolve the point.’

To read our blog on the key difficulties for trustees and crypto, follow the link:

Abacus Trust – Trustees’ Crypto Conundrum

By Alasdair Johnston – Director & Group Legal Counsel


HMRC – Cryptoassets Manual

STEP Guidance Note: Location of Cryptocurrencies – an alternative view