Can I Put Bitcoin in my Pension, SIPP or ISA in the UK? – The Crypto Adviser 

How to Invest Cryptocurrency into a Pension in the UK: A Guide for Crypto Investors 

With cryptocurrency gaining traction as a mainstream investment asset, many UK investors are now exploring ways to incorporate their crypto holdings into their pension plans. While direct investment of crypto into pensions isn’t straightforward, there are several methods and strategies that allow crypto enthusiasts to benefit from the tax advantages of pension schemes. In this guide, we’ll explore how you can invest in cryptocurrency-related assets through UK pensions such as SIPPs, SSAS, and ISAs, while also highlighting the tax benefits and potential risks. 

Understanding Pension Types in the UK 

Before diving into crypto-specific strategies, it’s important to understand the different types of pension schemes available in the UK. The two primary pension options for self-investors are: 

Self-Invested Personal Pension (SIPP): 

SIPPs offer greater flexibility than traditional pensions, allowing individuals to choose their own investments, including stocks, ETFs, and investment funds. While you cannot directly hold cryptocurrency within a SIPP, you can invest in crypto-related assets like shares of companies involved in the crypto industry or ETFs that track crypto performance. 

Small Self-Administered Scheme (SSAS): 

SSAS pensions are typically used by business owners and offer similar flexibility to SIPPs, allowing for investments in a broad range of assets, including company shares, property, and stocks. While direct crypto investments are not permitted, you can use SSAS to gain exposure to the crypto market indirectly. 

Individual Savings Account (ISA): 

While ISAs are not a pension, they are a tax-efficient savings account that allows you to invest in stocks and shares. While you can’t hold cryptocurrencies directly in an ISA, you can invest in shares of crypto-related companies or funds that offer indirect exposure to the cryptocurrency market. 

How to Gain Crypto Exposure in UK Pension Plans 

While direct cryptocurrency investments are currently not permitted within most pension schemes in the UK, there are several ways to gain exposure to the growing digital asset market indirectly: 

1. Investing in Cryptocurrency ETFs 

Although direct ownership of cryptocurrencies such as Bitcoin and Ethereum is not allowed within a pension, you can invest in cryptocurrency-focused Exchange Traded Funds (ETFs). These funds track the performance of crypto assets or companies operating in the crypto space, offering indirect exposure to the price movements of digital assets. 

Popular ETFs that are available for investment through a SIPP or ISA include: 

ETFs tracking crypto companies: These funds invest in a basket of companies involved in blockchain technology and cryptocurrencies. Examples include the Grayscale Bitcoin Trust (GBTC) and ProShares Bitcoin Strategy ETF (BITO). 

Blockchain technology ETFs: Funds that focus on companies developing blockchain solutions, which are critical to the crypto ecosystem. 

2. Investing in Crypto-Related Stocks 

Another way to gain exposure to the cryptocurrency market through your pension is by investing in the shares of companies that are involved in the crypto industry. This can be done via SIPPs, SSAS, or even ISAs. Some popular options include: 

Coinbase (COIN): A leading cryptocurrency exchange platform, Coinbase is a publicly listed company that provides a gateway to cryptocurrency investments without directly holding digital assets. 

MicroStrategy (MSTR): MicroStrategy is a software company that has gained notoriety for its significant Bitcoin holdings. By investing in MicroStrategy shares, you gain indirect exposure to Bitcoin’s price movements. 

Tesla (TSLA): Tesla is one of the most prominent companies to invest in Bitcoin. Although Tesla is primarily an electric vehicle company, its crypto holdings make it a potential option for those looking to invest indirectly in cryptocurrency. 

3. Investing in Crypto Mining Companies 

Crypto mining companies play an essential role in the creation of digital assets like Bitcoin and Ethereum. Some mining companies are publicly traded and offer an indirect way to benefit from the growing demand for crypto mining without directly holding the assets. 

Riot Blockchain (RIOT): One of the largest publicly traded Bitcoin mining companies. 

Hut 8 Mining (HUT): A major crypto mining operation based in North America. 

These companies can be included in your pension portfolio via a SIPP or SSAS, giving you indirect exposure to cryptocurrency while benefiting from pension tax relief. 

Tax Benefits of Investing in Crypto Through a Pension 

One of the key advantages of investing through a pension, including crypto-related assets, is the significant tax relief available to UK investors. Here are the primary tax benefits: 

Tax-Free Growth: 

Investments held within a SIPP, SSAS, or ISA grow free from Capital Gains Tax (CGT). This means that any gains from crypto-related shares or ETFs are protected from CGT as long as they remain within the pension. 

Tax Relief on Contributions: 

Contributions to your SIPP or SSAS are eligible for tax relief. For basic-rate taxpayers, this means a 20% uplift on contributions, while higher-rate taxpayers can claim additional relief through their tax return. For example, if you contribute £10,000 to your pension, the government effectively adds £2,000 in tax relief for basic-rate taxpayers. 

Inheritance Tax Benefits: 

Pension assets, unlike most other types of investments, are not usually included in the value of your estate for Inheritance Tax purposes. This means that by investing in crypto-related assets through your pension, you can pass on these investments to your beneficiaries tax-free in many cases. 

Income Tax Benefits: 

When you retire, you can typically take 25% of your pension pot as a tax-free lump sum, providing a significant benefit for long-term investors. 

Risks of Investing in Crypto Through Pensions 

While the tax advantages of pension investing are clear, it’s important to consider the risks associated with crypto-related investments: 

Market Volatility: 

Cryptocurrencies and crypto-related stocks are highly volatile. Prices can fluctuate dramatically in short periods, leading to significant gains or losses. 

Regulatory Risk: 

The cryptocurrency market is still relatively young, and changes in regulation could impact the value of crypto assets and companies involved in the industry. 

Limited Direct Exposure: 

Since UK pension schemes don’t currently allow direct investment in cryptocurrencies, you may not have the same level of exposure to crypto market gains as if you held the assets directly. 

Liquidity Issues: 

Some crypto-related assets, particularly smaller crypto companies or ETFs, may suffer from liquidity issues, making it harder to sell quickly when necessary. 

Conclusion 

While you can’t directly invest cryptocurrencies like Bitcoin or Ethereum into your UK pension, there are several ways to gain exposure to the crypto market indirectly through investments in ETFs, crypto companies, and mining operations. By leveraging pension schemes like SIPPs and SSAS, you can benefit from the tax advantages these structures provide while participating in the growth of the cryptocurrency industry. 

As always, it’s crucial to conduct thorough research and consider your risk tolerance before investing in crypto-related assets through your pension. Consulting with a financial or crypto tax advisor can help you make the most of your investments while staying compliant with UK tax laws. 

FAQ’s About Investing Cryptocurrency into a UK Pension

DISCLAIMER

© My Accountancy Team 2024 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. My Accountancy Team Ltd t/a mycryptotax.co.uk, cannot be held responsible for the consequences of any action or the consequences of deciding not to act.