CRYPTO41260 – Cryptoassets for businesses: corporation tax: transfer of tokens between distributed ledgers – HMRC internal manual

Token Transfer Between Distributed Ledgers

Tokens cannot simply be transferred from the distributed ledger for one crypto-asset to the distributed ledger for another crypto-asset. For example, a bitcoin cannot exist on the Ethereum blockchain. An effect comparable to an “exchange” can be achieved by using a smart contract and a secure public address. The token holder uses a smart contract to transfer the tokens to a public address they don’t control. An equivalent amount of tokens of the second crypto-asset are transferred from a secure public address to a public address controlled by the person.

The question is whether such transactions result in an assignment for CGT purposes (for guidance on the general interpretation of assignment, see CRYPTO22100, /manual/cryptoassets-manual/crypto22100). HMRC’s view is that the answer will depend on the facts.

“One-way” transfers

Some transfers can only go in one direction, which means that once the transfer is made, it cannot be canceled or transferred to a later date.

An example of this can be seen with the Ethereum blockchain. Currently, Ethers reside on the Ethereum “mainnet” (short for mainnet, Ethereum’s main public blockchain). Ether holders can choose to transfer their tokens from the mainnet to another blockchain called “Beacon Chain”. The Beacon Chain blockchain is where Ethereum’s “proof-of-stake” will be implemented (for more information on proof-of-stake, see CRYPTO10300, /manual/cryptoassets-manual/crypto10300). It will be impossible to transfer Ether from the Beacon chain to the mainnet, making transfers a one-way process.

HMRC’s view is that TCGA92/S43 applies to this type of transaction. The eligible costs relating to the first crypto-asset are fully attributed to the second crypto-asset. A gain or loss will normally accrue on a subsequent sale of the second crypto-asset.