Airdrops happen when someone receives an allocation of tokens. This might happen as part of a marketing campaign; as an automatic allocation because they already hold tokens (for example when Bitcoin holders were given tokens in Bitcoin Cash); or simply because the individual has registered to participate in an airdrop.
Airdropped tokens normally have their own infrastructure, operating independently of the infrastructure for an existing crypto asset,
So what's the income tax situation with airdrops? Normally income tax will not apply where the tokens were received:
- without having to do anything in return; or
- not as part of a crypto trade or business undertaken by the individual (including mining)
HOWEVER airdrops that are provided in return for, or in expectation of, a service will usually be subject to income tax, either as receipts of a trade (if the recipient is engaged in a trade involving cryptoassets) - or else under the "miscellaneous income" tax rules. The miscellaneous income rules are a set of tax rules designed to "sweep up" income not caught by any of the other income tax rules - the taxman does like to take his cut!
Selling a token that has been received through an airdrop can result in an income tax charge, if the individual is engaged in a trade involving cryptoassets. Alternatively, the sale can result in a chargeable gain subject to capital gains tax - even if the token was not taxed when first received. So it's important to get the right advice and Scholes Chartered Accountants can help you get this right and avoid problems with the taxman.
We can help with your UK crypto tax affairs - contact us today, or make visit us at our Edinburgh or Kirkwall offices.
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