Situs of Cryptoassets

Crypto Tax | International Tax | Situs

We were instructed by a large international professional services firm with its own digital assets tax team to advise on the situs of cryptoassets held by their client, a UK-resident non-domiciled individual.

The client held cryptocurrency through three different channels:

• A UK-based centralised exchange
• A Singapore-based platform regulated by MAS
• A private self-custody wallet

The Challenge

The situs of cryptoassets remains one of the most unsettled areas of UK tax law. HMRC's published view - that situs follows the beneficial owner's statutory residence - has been criticised by practitioners and is arguably incomplete (applying only to individuals, and only for full tax years).

The courts have taken a different approach. In Ion Science, Fetch.ai, and Tulip Trading, the judiciary has gravitated toward the common law residence of the owner, with Tulip Trading also acknowledging that the location of the private key (i.e., control) may be relevant.

Our Analysis

We examined whether each holding arrangement constituted a trust or a purely contractual relationship — a critical distinction for situs purposes.

For the UK exchange, despite custodial language suggesting assets were held "for" the client, the terms explicitly disclaimed fiduciary status. Applying the reasoning from B2C2 v Quoine and Re Gatecoin, we concluded the client held only a personal right of action against a UK company — placing the asset firmly within UK situs regardless of which approach is adopted.

For the Singapore platform, new MAS Digital Payment Token regulations (effective October 2024) mandate trust-based custody with segregated accounts. The client therefore held a beneficial interest in the underlying assets, with the platform as bare trustee. Under the private key/control approach, these assets could be argued to have Singapore situs.

For the private wallet, the client controlled the keys directly. Under any plausible approach — HMRC's, common law residence, or private key — the situs would follow the client's location.

Outcome

We provided a comprehensive opinion setting out the three competing approaches to crypto situs, analysed the specific terms of each platform, and advised on the practical implications for CGT and IHT planning.

Where our view diverged from HMRC guidance, we recommended appropriate disclosure to protect against discovery assessments and penalties.

This case study is based on a real client matter. All identifying details have been removed or changed to protect client confidentiality.