- Non-fungible tokens: tax implications to look out for with NFTs
Non-fungible tokens: tax implications to look out for with NFTs
Non-fungible tokens: tax implications to look out for with NFTs25th March 2021 - Published by
Earlier this week Jack Dorsey, the creator of Twitter, sold the first ever Tweet for £2.1million. This might seem strange as anyone can still go online and see the tweet, but what Dorsey has sold is an NFT – a non-fungible token – which is effectively a digital certificate of authenticity that cannot be replicated together with the meta data that made up the original tweet.
It’s a bit like owning a Monet painting that is displayed in a gallery – everyone can see the original, but you own it.
What are the tax implications?
It’s predicted that the sale of NFTs will become more and more normal over the coming years, but if this is something that you are interested in, it’s important to be aware of any tax liabilities that may arise on such a sale.
Under UK tax law an NFT is an asset, so if it is sold for more than you paid for it, there will be a tax liability – most probably Capital Gains Tax, unless it is sold in the course of your business. In this case, as Dorsey created the tweet for nothing, the whole value would be liable for tax.
The articles about the sale all mention that Dorsey is donating the proceeds to charity. If you are selling an asset at a gain in the UK to donate the proceeds to charity, make sure you appropriate the asset to the charity first, as this will then mean there is no tax to pay. If this is not done, even if you subsequently donate the proceeds to charity, you will still have to pay the tax first, meaning there is less available for your chosen charity.