2021 could be considered as the year of crypto, being marked by several major breakthroughs for cryptocurrencies. New crypto applications like non-fungible tokens (NFTs) set new records at major auction houses, Bitcoin made big strides towards mainstream acceptance with major websites accepting the coin as a means of exchange, and even a country – El Salvador becoming the first country to accept Bitcoin as legal tender.

Despite all this, the UK housing market still has not started to accept crypto as legal tender for buying a house, David Hannah, principal consultant at Cornerstone Tax discusses why and whether it will change in the future.

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The rise of cryptocurrency has continued throughout 2022, with digital currencies now well on their way to becoming part of mainstream finance. The last year has seen a drastic transformation and an astronomical rise for crypto, but with the market still being considered as volatile, the future of the crypto market remains unclear.

The increasing mainstream attention which cryptocurrency is achieving has meant that the number of institutions accepting cryptocurrencies as a method of payment is growing by the day, with products such as cars, insurance, technology, and jewellery all being available to purchase using a cryptocurrency as a payment method. However, one product which is still unavailable to buy via cryptocurrency is UK real estate.

The volatile nature of cryptocurrency has caused complications in accepting it as a trade for a UK property, with fluctuations being sizeable in the market, however, with the market cap of the top 3 cryptocurrencies amounting to $1.4 trillion it seems impossible to deny for too long.

The UK housing market has not yet adopted cryptocurrency as a recognised method of payment, but how long will it take?

Why and When?

When someone decided to buy a new house or property, why do you think they still rely on personal loans and auction finance yet? They must be in possession of crypto coins which they can easily trade to own the property. However, they can’t! Why the UK housing market doesn’t accept cryptocurrency as payment is a hot topic. The answer is fairly straight forward – generally currencies are traded on a recognised exchange, currencies usually belong to nation states who have central banks, for example The Bank regulates sterling, and the US fed regulates the dollar.

The truth is, there is no central bank for cryptocurrency, it doesn’t have a nation state. So, it can’t be a recognised currency and can’t be exchanged or traded against other currencies. In fact, a cryptocurrency is an asset, a bit like a tangible asset like gold, or indeed any other valuable asset – like a work of art or a vintage car. These, unlike recognised currencies are chargeable to capital gains tax, however, not a lot of people realise that foreign currency gains are exempt from CGT. As Bitcoin and its sisters are regarded as assets, they are taxable. Because of that, if you were trying to buy a property with a cryptocurrency, you wouldn’t be paying in a foreign currency – which the stamp duty legislation takes account of, but rather exchanging one asset – the cryptocurrency, for another asset – the house.

If you take payment in a foreign currency, the SDLT rules require you to take the exchange rate on the day of completion. However, with the exchange of a non-monetary asset you must take the market value. Valuing cryptocurrency on any given day is straightforward, but for example, if I wanted to swap my house for your Mona Lisa, how would we value that? There is also the problem of transmission and certification of value. Solicitors are not geared up to deal with non-monetary consideration. This is why you won’t be able to buy a UK property with cryptocurrency, yet.

It’s going to take time for things to become more mainstream, only the market will dictate how long that takes.