UK Government Considering Expansion of Investment Transactions List to Include Crypto-Assets

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP

The UK Government has announced a public consultation regarding the possible expansion of the UK’s investment manager exemption (“IME”) to encompass crypto-assets.

The IME enables UK-based fund managers to provide management services relating to investment transactions to non-UK located funds without resulting in such funds being subject to UK taxation. The meaning of “investment transaction” in this context is construed in accordance with a list of qualifying transactions and asset-classes, including shares, securities and derivative contracts. That list is known as the Investment Transactions List, and is set out in a UK statutory instrument passed by parliament. The UK Government consultation considers whether crypto-assets should be included in the Investment Transactions List for the purposes of the IME, thereby offering fund investors a safe harbour for the management of crypto-asset portfolios, provided that the other conditions of the IME are also satisfied by the relevant fund manager. 

Currently, crypto-assets are not included as a qualifying transaction on the Investment Transactions List. The UK Government had announced on 4 April 2022, as part of the UK Government’s FinTech Sector Strategy, its intention to expand the IME to include types of crypto-assets. The stated aim of the UK Government was to provide certainty of tax treatment to UK investment managers and their non-UK resident investors who are seeking to include crypto-assets within their portfolios, and thereby also encourage new crypto-asset investment management businesses to establish themselves in the UK.

Defining crypto-assets

Barely a day goes by without an evolution in the crypto-asset marketplace. The perceived opportunities relating to, and investor appetite for, crypto-assets as an investment class have been a significant incentive behind the UK Government’s consultation. Notwithstanding this enthusiasm, the consultation acknowledges that the definition of a crypto-asset for legal purposes is not straightforward.

The consultation states that “the term ‘cryptoassets’ is an umbrella term,” comprising different types of crypto technologies, including but not limited to exchange tokens, utility tokens, security tokens, stablecoins, smart contracts, and non-fungible tokens. The UK Government’s suggestion is that a legal definition for the IME (and other tax-related legislation) should follow the approach proposed in the Crypto-Asset Reporting Framework published by the Organisation for Economic Co-operation and Development (“OECD”) in March 2022. That definition is, currently, as follows:

The term ‘cryptoasset’ refers to a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions.

The UK Government acknowledges in the consultation that the OECD crypto-asset definition would need to exclude crypto-assets that relate to assets currently excluded from the Investment Transactions List. Prohibited transactions would include those where crypto-assets provide for transactions in land, and transactions where crypto-assets result in the transfer of tangible or intangible assets not already included in the Investment Transactions List. The limitation of the definition of crypto-asset in this manner is intended by the UK Government to prevent the utilisation of crypto-assets in a way which would undermine other UK tax policy perimeters.

The consultation raises a number of questions on which the UK Government is welcoming responses. These include seeking to identify which types of crypto-assets investment managers are seeking to include as part of crypto-asset product offerings, and information on the likely types of fund products that would start or continue to be managed from the UK as a result of including crypto-assets within the scope of the IME.


The consultation is to be welcomed as part of the UK Government’s work to provide greater clarity on the taxation of crypto-assets. There is also a suggestion in the consultation that the UK Government sees the legal definition of crypto-assets as beneficial to the UK financial sector generally. This is evidenced in the consultation’s suggestion that any expansion of the Investment Transaction List to encompass crypto-assets would potentially be replicated for other fund-based tax regimes in addition to just the IME, including those relating to diversely owned authorised investment funds and exempt unauthorised unit trusts.

The consultation runs from 23 May 2022 to 18 July 2022.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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