The rising use of non-fungible tokens (NFTs) is evident, with the UK Chancellor recently ordering for a government-backed NFT to be created. The world of cryptoassets continues to evolve, leaving question marks over the tax implications.
Real Estate NFTs
Read our guide to the basic terminology used in relation to cryptoassets here.
The technology behind NFTs could lead to many new possibilities, including Real Estate NFTs. NFTs are non-fungible, meaning that each token is unique and almost impossible to replicate. NFTs have also been described as digital title deeds. The transaction history of an NFT and its connection to the underlying asset are verifiable through blockchain, allowing the holder to prove their ownership. This is specifically due to digital ledger technology (DLT), where records are updated and verified by every computer on the network.
Given the characteristics of NFTs, NFTs could replace property title deeds in their current form. In the UK, the ownership of land and the associated rights are currently recorded centrally by the Land Registry. In the future, it could be possible for these records to be captured within an NFT instead. Real Estate NFTs could allow for property ownership to be transferred within one simple click.
Stamp Duty Land Tax (SDLT)
In a traditional property transaction, SDLT becomes payable upon the purchase of real estate in England and Northern Ireland. More specifically, a tax charge will arise upon the acquisition of a chargeable interest, which includes an interest, right or power in land.
While there is no current English legislation specifically on cryptoassets, HMRC have published guidance on exchange tokens such as Bitcoin. Within the cryptoasset manual, HMRC confirm that they do not consider SDLT to be payable upon exchange tokens. HMRC are yet to publish any guidance over other types of tokens.
A Real Estate NFT would not fall within the definition of an exchange token, and as such, there is currently no definitive HMRC guidance as to whether SDLT would be payable upon such transfers. However, if NFTs do become a valid method of transferring property ownership, such NFTs would likely be seen as an interest in land, and therefore a chargeable interest, leading to an SDLT charge under the current legislation.