What is Cryptocurrency?
Cryptocurrency is becoming more prominent in our modern society. It is a form of digital currency, and the most known examples include Bitcoin and Ethereum. Cryptocurrency can be seen as appealing to individuals as there is no central authority, such as a government or a bank, to uphold or maintain it. This makes it seem that users have more control over their funds. However, there are also significant risks involved as there is no central authority to protect users against unfortunate circumstances.
The Process of Using Cryptocurrency in Conveyancing
There are several ways you could use your cryptocurrency to pay for conveyancing purchases, such as:
- Using Cryptocurrency Directly: In certain cases, sellers accept using cryptocurrency as payment for the property. This removes the requirement of converting your cryptocurrency to fiat currency. However, finding such sellers who will accept this method might be tricky.
- Converting to Fiat Currency: The most widely used route is to convert your cryptocurrency into British pounds sterling and then use these funds to complete the purchase.
- Crypto Mortgages: There are some lenders who have started to offer mortgages backed by cryptocurrency. However, this adds another layer of complexity.
Anti-Money Laundering (AML) Regulations
One of the main challenges on accepting Cryptocurrency in conveyancing purchases, involves the compliance with AML regulations. Solicitors would need to take extra steps to establish that the original funds used to buy the cryptocurrency are from legitimate sources and then trace these funds through to the funds that will be used for the purchase.
The Law Society has suggested to do the following:
- Obtain evidence that the source of the funds used to invest in the cryptocurrency are from legitimate sources – for example, if derived from salary, then obtaining pay slips;
- Verifying that the original funds were in fact invested in the cryptocurrency – for example, by obtaining bank statements showing the transfer from the bank account to a cryptocurrency exchange;
- Verifying that the cryptocurrency investment has in fact generated the funds intended to be used to purchase the property;
- Obtaining evidence that the cryptocurrency proceeds are deposited in the account used to provide the purchase monies.
Know Your Customer (KYC) Regulations
Similarly to AML checks, when accepting Cryptocurrency in conveyancing purchases, there is a need for enhanced identity verification checks. These checks need to be conducted on all parties involved to confirm their identities and to prevent fraud.
Tax Implications
Another challenge on accepting Cryptocurrency in conveyancing purchases, are the tax implications that arise from the transaction. If you sell cryptocurrency for a profit before purchasing the property, this may trigger Capital Gains Tax liabilities. Additionally, it is important to note that Stamp Duty Land Tax is calculated on the British pound sterling value of the property at the time of the purchase.
Other Challenges:
- Volatility: The value of cryptocurrency could fluctuate drastically between start of the conveyancing transaction and completion. Determining a fair price in Bitcoin or Ethereum could be tricky, so it is crucial you agree on a clear mechanism for deciding the crypto equivalent of the purchase price.
- Regulation: The regulation for cryptocurrency is still evolving, so there is still uncertainty for both buyers and sellers.
- Niche Market: As few buyers and sellers are using cryptocurrency in conveyancing, this limits the market for this process.
Klaudia Dancewicz, Paralegal.
HOW CAN LEWIS NEDAS HELP YOU?
If you require further guidance or advice regarding any of the matters discussed in this article, please get in touch with our expert Residential Property team.
Contact us via our enquiries page or by telephone on 020 7367 2032