The crypto space has faced tough legislative and regulatory changes in recent years, following its rapid growth and general increase in popularity. However, a recent announcement published by HM Revenue and Customs (HMRC) may provide some clarity on how retail investors will be able to invest in cryptocurrency moving forward.
The policy paper, which was published earlier this month, outlines the introduction and treatment of Cryptoasset Exchange Traded Notes (cETNs). These investments are effectively debt securities designed to track the performance of underlying cryptoassets such as Bitcoin or Ethereum. Importantly, the paper also highlights how these investments could be shielded from income and capital gains tax in the UK.
Expanding Access
The Financial Conduct Authority (FCA), in supporting long-term savings and investment habits, has authorised retail investors’ access to cETNs, which had previously been restricted to professional investors. The decision forms part of the FCA’s broader strategy to support responsible, long-term savings and investment habits while ensuring that new asset classes can operate within a secure, regulated framework.
From 8 October 2025, cETNs will be eligible to be held in registered pension schemes and stocks and shares ISAs. This inclusion represents a key development for crypto investors who have, until now, struggled to benefit from the tax-efficient structures that traditional investors routinely enjoy.
However, from 6 April 2026, cETNs will be recategorised as qualifying investments within Innovative Finance ISAs (IFISA). While the exact reasoning behind this shift has not been fully elaborated upon, it indicates the government’s intention to separate higher-risk or emerging investment products from the more conventional assets typically held in stocks and shares ISAs.
The government has also stated that it will keep the inclusion of cETNs under review, with a view to potentially reintegrating them into the stocks and shares ISA as the market matures and consumer understanding of cryptoassets deepens.
Areas of Uncertainty
There are three main areas of uncertainty that require further clarification.
Firstly, it is not yet clear how cETNs purchased during the initial period (between 8 October 2025 and 6 April 2026) will be treated once the reclassification takes effect. For example, if an investor purchases cETNs within a stocks and shares ISA during that interim window, will those investments remain within that ISA, or will they need to be transferred to an IFISA? The HMRC paper does not currently specify the practical mechanics of this transition, and investors should pay close attention to future updates from both HMRC and the FCA.
However, having reviewed the government’s guidance on stocks and shares ISAs, where investments are considered non-qualifying, platform providers must, within 30 calendar days of the date on which they became non-qualifying, either sell them or transfer them to the investor (or potentially an IFISA), to be held outside of the stocks and shares ISA. This might be the approach followed but until further guidance is provided, we cannot be certain.
Secondly, there remains the issue of removing cETNs from the stocks and shares ISA structure entirely. While the Innovative Finance ISA offers its own tax advantages, it is traditionally associated with peer-to-peer (P2P) lending, debentures and debt-based securities, rather than exchange-traded products. Some investors may therefore find the shift inconvenient, particularly those who prefer to manage all their market investments within a single, consolidated ISA wrapper. This could add administrative complexity and potentially reduce flexibility in managing a tax-efficient portfolio.
Finally, there are only a limited number of platforms currently offering IFISAs, which may create accessibility and competition issues. A smaller provider base could lead to higher fees, limited product choice, and reduced liquidity compared to mainstream ISA platforms. This makes it especially important for investors to compare providers carefully and ensure they are using an FCA-authorised company that offers adequate transparency, risk disclosure, and clear exit arrangements.
A Practical Example: Potential Tax Savings
To understand the potential benefits, let us suppose an investor purchases a cETN tracking the performance of Bitcoin, and over a 10-year period the investment appreciates by £10,000 in value.
If that cETN were held outside of an ISA, the gain would typically be subject to Capital Gains Tax (CGT). Based on the 2025/26 tax year allowance of £3,000, only gains up to that amount would be exempt, with the remainder taxed at 18% for basic rate taxpayers or 24% for higher or additional rate taxpayers.
For example:
- Total gain: £10,000
- CGT allowance: £3,000
- Taxable gain: £7,000
- Tax due (basic rate): £1,260
- Tax due (higher or additional rate): £1,680
By contrast, if the same investment were held within an ISA or IFISA, the entire gain would be free from CGT, effectively saving between £1,260 and £1,680 (depending on the investor’s tax band).
If the cETN also paid a form of yield or coupon during that time, those distributions could also be exempt from Income Tax within an ISA structure. This combination of tax efficiency and exposure to a growing asset class makes cETNs a potentially attractive option for investors who are willing to accept the inherent volatility of crypto markets.
Understanding Innovative Finance ISAs
The Innovative Finance ISA (IFISA) was first introduced in 2016 to encourage investment in peer-to-peer lending and other alternative finance markets. It allows individuals to earn interest and capital gains tax-free, much like a stocks and shares ISA. However, IFISAs tend to carry higher risk, as returns often depend on the performance of loans or debt instruments rather than diversified equity portfolios.
By incorporating cETNs into the IFISA structure, the government appears to be drawing a line between traditional market assets (such as shares, bonds, and funds) and emerging digital products. The move may help manage systemic risk by ensuring that cETNs sit within a more specialist category designed for non-traditional investments.
Despite this, IFISAs remain relatively underused compared to their stocks and shares counterparts. According to HMRC statistics, they account for a very small percentage of total ISA subscriptions each year. This may, however, begin to change as cETNs and other tokenised investments are introduced, offering new opportunities for diversification within a tax-efficient wrapper.
Investors should note that eligibility, risk appetite, and provider options will vary. Unlike most stocks and shares ISAs, IFISAs are often limited to specific platforms or issuers, and liquidity can be lower. Additionally, the value of cETNs may fluctuate significantly, given the volatility of the cryptoassets they track.
Conclusion
Overall, HMRC’s announcement represents a measured but encouraging step in integrating crypto-based products into the UK’s regulated investment market. By offering tax-advantaged access to cETNs, the government is signalling a shift toward legitimacy and investor protection, rather than restriction.
The key for retail investors will be to stay informed as guidance evolves between now and 2026, particularly around how transitional arrangements are implemented and what regulatory safeguards will accompany them.
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