In the UK, an airdrop not provided in return for a service is not income or capital gain. However, it does have a cost basis at market value, for future gains/losses. The Uniswap UNI airdrop falls into this category. By default, my UNI airdrop transaction appears as a Deposit. If I tag it as an Airdrop, it shows 0 cost which in the UK at least is wrong. If I leave it as a Deposit, the cost shows correctly and I believe that gives it the correct treatment.
If the above is correct, it is confusing for UK clients as they may tag as an Airdrop and then get taxed on gains later in error. Thanks for any advice on this.
I’m also in the UK. I agree that the UNI airdrop is free from income tax. Therefore you need to set the setting ‘Treat airdrops and forks as income?’ as NO in the settings page and then tag it as an airdrop.
It will show a 0 cost on your transaction page which is correct as it was an airdrop (and therefore not counted as income). It does still show up as market value in your dashboard and also has a value in your end of year balances in your tax report.
Therefore when you come to sell / trade it will get picked up in your CGT.
Hi @Anthony, thanks for the reply. I do have Treat airdrops and forks as income = NO. However, I believe the amount shown as “worth” when you Edit the transaction forms the cost basis for later CGT calculations doesn’t it? So you need the correct cost basis which is not 0, it is the market value at the time of the airdrop. Thanks
Hi @forest. No - you keep the worth at 0 as you didn’t pay for them (they were free)! Therefore, when you sell the asset you pay CGT from 0 (as they were free). I just tested this creating a manual transaction selling for £5k and I get a gain of £5k which is correct. As they were free we’ve gained all the value (not just from the value they were when we got them for free - that’s tricking the system thinking we paid the £1100 or whatever they were on the day).
This also makes sense if you sold them on the day you got them - you couldn’t just gain £1100 and not document as either income or Capital gains? Hope that makes sense?
I also spoke to a tax expert at mycryptotax.co.uk and they said the same, that the cost basis is the value at the time of the airdrop, though I might have misunderstood.
Has anyone had much luck asking HMRC such questions. When I tried calling they were too busy to take my call.
Thanks for this information as I had originally tagged the UNI airdrop down as income.
The only guidance I see on the HMRC website about airdrops states that airdrops ARE subject to income tax. I see no further clarity on this “service or participation” clause that exempts them. I understand that it is included as guidance on the recap website, however there is also a disclaimer on their site that says that it is only for informational purposes and it is not tax advice? If HMRC question this I don’t think forwarding on the website link will be enough?
Do I really have to go to a tax specialist to take on the risk of getting this wrong and stand over the decision just to not pay 200£~ in income tax on it or is there some other concrete guidance out there that confirms that it is not income tax?
Of course, so stupid that there is not further clarity on this, but I really want to automate all this stuff away and not have to go through another 3rd party just to confirm individual situations like this?
Where HMRC say:
Income tax may not apply if they’re received:
without doing anything in return (for example, not related to any service or other conditions)
I can’t see how using uniswap is providing a service or doing something in return. Every airdrop has to have some criteria to decide who to drop to, so that fact that you met the criteria isn’t the same as providing a service to uniswap, such as promoting them via social media. I did speak to a crypto tax advisor who thought it would not be deemed income, though this was not an official decision. I would see it as reasonable interpretation, so hard to see you would get in trouble for it. Especially if the correct CGT cost basis is then 0, though that is also unclear to me.
@forest The cost basis is what you see on the transactions page, the value you see when editing the txn is ignored if you have disabled the “airdrop as income” option.
@koinly thanks for that clarification; I guess the UI shouldn’t allow that “worth” value to be edited for an Airdrop if it is ignored. In any case it can be left as a Deposit and not flagged as an Airdrop in order to have the cost basis at the actual value.
For peace of mind does anyone have a final answer with regards to this as if it were to be classed as income it would push me into the next tax bracket.
As someone posted below, HMRC does not seem to treat it as Income if you didnt do anything to get it. And we didnt know that this airdrop will happen when we did trades on uniswap so it was like a gift. Ill be recording it as capital gains with 0 cost basis. dont see how it can be classed as income, we didnt even have to stake anything.
Where HMRC say:
Income tax may not apply if they’re received:
without doing anything in return (for example, not related to any service or other conditions)
Just to add to that, HMRC guidance says that in VAST majority of cases crypto gaines will be subject to CGT unless you did mining (without being able to ofset hardware and electricity costs, which is the most stupid appraoch ever but hey its UK) or getting paid in crypto or running a business.
Everyone who received the Uniswap airdrop had no knowledge or expectation of receiving the airdrop as it was not public knowledge until after the snapshot which determined who got the airdrop. I cannot see how ANY argument could be constructed other than that airdrop was received without doing anything in return.
Therefore airdrop will be tax free and the market price at the point you claimed it will be the cost basis and CGT will be due on any gains upwards from that point.
Hindsight is a wonder thing, knowing what I know now I would have let Uniswap go up to 20 GBP plus BEFORE claiming the airdrop and then that would have been my cost basis.
I like your thinking and I agree on the logic that it can hardly be considered income given that it came out of the blue from using a permissionless public resource. But there are conflicting views on whether the cost basis is the price when acquired or 0 - logically 0 seems right if nothing was paid for it, but as per my comments earlier in this thread, some sources suggest otherwise. If you have firmer resolution on the cost basis, let us know.
This article agrees with my initial thoughts that you would treat the tokens as Zero cost when you come to sell:
“If you are a personal investor and receive an airdrop for doing nothing, you will not be subject to Income Tax. Capital gains tax treatment may still apply when you later sell these coins which have zero cost basis.”