Seasonal generosity unwrapped: HMRC’s latest gift to Charities in updated guidance

As it’s approaching Christmas and it’s the season of goodwill to all, HMRC have kindly updated their guidance for charities (24 November 2023).

The updated guidance explains that crypto-asset donations are not eligible for gift aid unless they have been converted to money, which on the face of it appears perfectly reasonable and easier for the charities to deal with.

I’m sure going forward, when charities are approached with crypto, they will request that it is changed to cash before they can accept and everyone is happy…. or so you think.

So why during the season of goodwill have HMRC dropped this – well let’s look at the tax to see if there is any sense behind the HMRC changes.

Charities are exempt from Capital Gains Tax (CGT) where the gains are used for charitable purposes. The conversion of crypto to cash is a taxable event (CGT) which means no tax for HMRC from the charity when they convert crypto to cash however, it does mean that the kind-hearted individual wishing to donate will suffer CGT on the exchange of the crypto to cash (if the exchange rate is above the crypto cost).

Season of goodwill? More of a calculated decision by HMRC… yes, the charity will be able to claim ‘gift aid’ on the cash donation however, the gift aid value in the majority of cases, will be lower than the tax on the gain made on the exchange so both the individual and the charity could both be losing out on what appears to be a reasonable approach by HMRC….