With the UK's "third type of property" now in effect, what changes will occur in the taxation of crypto assets?

On December 2, 2025, the UK Property (Digital Assets etc) Act 2025 (hereinafter referred to as the Act) officially came into effect.

Author: FinTax

introduction

On December 2, 2025, the UK's Property (Digital Assets etc.) Act 2025 (hereinafter referred to as the Act) officially came into effect. Unlike the financial regulatory legislation surrounding crypto assets in recent years, the Act does not directly address specific regulatory rules such as issuance, trading, custody, or anti-money laundering. Instead, it starts from a more fundamental level of property law, making a principled affirmation of the legal attributes of digital assets. The Act explicitly states that even if something is neither a "tangible thing" in the traditional sense nor a "claimable object," it is certainly not excluded from the scope of objects of personal property rights.

In English common law, personal property has long been divided into two categories: "things in possession" and "things in action." For a long time, digital assets such as crypto tokens, stablecoins, and non-fungible tokens (NFTs) have been widely traded, inherited, pledged, and even used as collateral in economic practice. However, whether they constitute "property" in the context of common law has always been a subject of theoretical debate and case law disagreement. Although English courts have gradually recognized the property attributes of certain crypto assets in individual cases, the overall legal framework still lacks a unified and clear institutional definition.

Against this backdrop, the significance of the bill's passage lies in its clarification that digital assets, represented by crypto tokens, are not inherently excluded from personal property rights simply because they do not fall under the traditional dichotomy of "tangible property/claimable property." It also provides legislative support for courts to further develop common law rules regarding "third type of personal property," clearing conceptual obstacles for the application of comprehensive property rights protection rules. This change not only has significant private law implications but will also have a ripple effect on tax systems, regulatory enforcement, and compliance practices. This article, based on an overview of the bill's legislative background and core content, and in conjunction with the UK's current crypto asset tax system, analyzes how the establishment of "third type of property" will reshape the legal and tax treatment logic of crypto assets, and further explores its practical impact on crypto practitioners and future regulatory trends.

1. Legislative Response to Real-World Problems

Prior to the enactment of this bill, a structural contradiction had gradually emerged in UK legal practice: on the one hand, crypto assets were frequently treated as "property interests" in areas such as finance, taxation, and bankruptcy; on the other hand, under the strict common law classification system, their legal status consistently lacked a clear definition. This inconsistency not only increased the uncertainty of judicial decisions but also, to some extent, raised transaction and compliance costs. Especially in scenarios involving tax disputes, asset freezes, bankruptcy liquidation, and inheritance disputes, whether an asset constitutes "property" often becomes a prerequisite for parties' defenses or law enforcement agencies' assertions. If the property attributes of such assets cannot be reliably confirmed, the legal basis for related rights remedies and tax administration may also be challenged.

It is against this backdrop that the legislature chose to legitimize the inclusion of digital assets within the existing property law framework through minimal institutional intervention. The bill's principled affirmation of the property rights nature of digital assets helps to lay a clearer and more solid legal foundation for the application of subsequent tax rules, the refinement of regulatory policies, and the unification of judicial practice.

2. Overview of the UK's Crypto Asset Tax System

Prior to the legislation, the UK had already established a relatively clear stance on the treatment of crypto assets in terms of taxation. HMRC (Her Majesty's Revenue & Customs) has long managed crypto assets within the existing tax framework through interpretative guidance. Generally speaking, crypto assets are not considered currency or foreign exchange under UK law, but are typically treated as property interests with economic value, subject to income tax, capital gains tax, or corporate tax rules depending on the specific transaction.

In practice, HMRC focuses more on whether the relevant transaction or disposal results in economic benefit, rather than the technical characteristics of the asset itself. Therefore, whether crypto asset gains are obtained through transactions, exchanges, payments, or, in specific circumstances, mining or staking, the related tax consequences must be assessed within the existing tax law framework. Furthermore, in scenarios such as inheritance and bankruptcy liquidation, crypto assets may also be included as part of the overall asset portfolio for tax consideration.

Under this tax system, crypto assets have long been treated as taxable property interests at the operational level. However, their property law status has long relied primarily on administrative interpretations and judicial practice for support, lacking explicit confirmation at the level of written law. It is against this backdrop that the confirmation of the property rights attribute of digital assets in this property law legislation is of great significance in further consolidating the foundation of the existing tax system.

3. Comprehensive Interpretation of the Core Provisions of the Bill

The core provisions of the bill do not directly define which digital assets automatically constitute property. Instead, through a negative legislative approach, it affirms that digital or electronic items will not be excluded from personal property rights simply because they do not conform to traditional property classifications. This legislative technique, seemingly conservative, represents a substantial institutional breakthrough within the English common law system. Its impact extends beyond property law itself, spilling over into taxation and regulation.

3.1 The Legal Meaning and Legislative Logic of "Third Category of Property"

In the English common law tradition, personal property has long been divided into two categories: "things in possession" and "things in action." Things in possession typically refer to tangible property that can be physically possessed, while things in action depend on legal relationships, such as claims or contractual rights. Crypto assets, especially crypto tokens generated based on blockchain technology, exist in a gray area between these two categories because they cannot be physically possessed and are not attached to specific legal relationships.

In recent years, UK courts have recognized crypto assets as property in numerous cases and supported property remedies accordingly, as seen in cases such as AA v Persons Unknown (2019), Fetch.ai Ltd v Persons Unknown (2021), and D'Aloia v Persons Unknown (2024). However, the traditional precedent regarding the "exhaustive classification of property" has consistently left room for uncertainty in relevant rulings. Against this backdrop, this legislation clarifies that the object of individual property rights is not necessarily limited to the two traditional forms mentioned above. This legislative approach reflects the UK's consistent restraint in digital economy legislation, leaving specific application issues to the courts to handle on a case-by-case basis. This not only helps avoid the risk of legislative lag but also aligns with the UK common law tradition of "judicial evolution at its core."

3.2 Institutional impact on the existing crypto asset tax system

Although the bill itself does not directly amend any tax legislation provisions, the recognition of "third type of property" will still have a significant impact on the UK's existing tax system for crypto assets at the institutional level. Its core function is not to change the tax rate or the specific calculation method of tax liability, but to eliminate the ambiguity in the concept of taxation.

As mentioned earlier, the UK tax authorities have long treated crypto assets as taxable property interests in practice, but this practice has always relied on administrative interpretation and practical precedent. If the property attributes of crypto assets are fundamentally denied at the judicial level, the legal basis for related tax treatment may face challenges. This legislation, by making a principled affirmation at the level of property law, provides a more solid private law foundation for the concept of "property" upon which tax rules rely.

This institutional strengthening will help reduce conceptual disputes surrounding the tax treatment of crypto assets. For example, in issues such as the application of capital gains tax, asset valuation, loss recognition, and the scope of inheritance tax, "whether it constitutes property" will no longer be a preliminary question requiring repeated debate. This does not mean that tax obligations will be increased or reduced, but rather that the focus of tax disputes will be more on the transaction itself and its economic consequences.

Furthermore, clear recognition at the property law level will help tax authorities exercise their powers within the framework of information reporting, law enforcement cooperation, and cross-border information exchange. As crypto assets are gradually incorporated into a broader international tax transparency system, stable and consistent property classification will help improve the overall predictability of the system.

3.3 The new legislation reveals the latest trend in UK crypto regulation.

The bill reflects a clear choice of regulatory approach. The UK prioritized addressing the most fundamental and common legal issue: whether digital assets qualify as protected property rights. This "first establish rights, then refine" legislative approach contrasts sharply with the practice of some jurisdictions that choose to cover issuance, trading, and custody activities all at once with highly detailed regulatory rules. The UK's approach, by eliminating conceptual uncertainties first, lays a common legal foundation for the coordinated operation of subsequent tax, financial regulation, and judicial practice. Simultaneously, this helps maintain the UK's institutional attractiveness as an international center for dispute resolution and financial services, enabling related disputes to be handled within a relatively clear property rights framework.

Overall, the establishment of "third property" does not signify a relaxed regulatory stance on crypto assets in the UK. On the contrary, it marks the formal inclusion of digital assets into the existing legal order, resulting in a more comprehensive and systematic application of regulations.

4. Industry Impact and Policy Outlook

The enactment of the bill will not directly change the trading model or tax structure of crypto assets in the short term, but by establishing ownership of digital assets at the level of property law, it will have a series of gradual and far-reaching impacts on the compliance environment of the crypto industry.

4.1 For individual investors: rights and responsibilities are strengthened simultaneously.

For individual investors, the explicit inclusion of digital assets within the scope of property rights protection primarily means a more solid foundation for their rights under private law. In scenarios involving theft, fraud, asset freezing, or inheritance, claims will no longer face additional obstacles due to the ambiguity of the asset's nature. This change helps improve the predictability of legal remedies and, to some extent, addresses long-standing questions surrounding the legal protection of digital assets.

As digital assets are more clearly recognized as protected and disposable property interests, the responsibilities of individual investors in tax reporting, asset records, and source attribution will become clearer. Under the existing tax framework, related transactions are already subject to taxation, and the confirmation of property rights at the property law level will further weaken the space for defense based on "unclear legal nature." For investors, this means increased certainty regarding compliance obligations, but the associated passive risks do not disappear. These passive risks are mainly reflected in three aspects: taxation, information disclosure, and legal consequences. First, with the confirmation of the property attributes of digital assets, the existing tax system's foundation is more solid, and historical transactions and proceeds are more easily included in tax review. Second, with the advancement of information disclosure requirements and cross-border data exchange mechanisms, even if investors do not actively declare, their assets and transaction details may be identified through third-party channels. Third, once the property attributes are confirmed, digital assets will automatically generate corresponding consequences in legal scenarios such as enforcement, bankruptcy, or inheritance.

4.2 For project owners, platforms, and service providers: Compliance expectations are becoming clearer.

For crypto projects, trading platforms, and related service providers, the more significant aspect of this legislation lies in shaping the institutional environment. When digital assets are explicitly recognized as objects subject to full property rights rules, their legal processing paths in scenarios such as custody, liquidation, bankruptcy, and guarantees will become clearer. This clarity helps reduce institutional uncertainty and provides a more stable legal foundation for business structure design, risk isolation arrangements, and internal compliance systems.

At the same time, it should be recognized that the confirmation of ownership itself will not weaken the intensity of regulation. On the contrary, as digital assets fully integrate into the existing legal order, related activities will be more easily incorporated into tax, anti-money laundering, and other compliance regulatory frameworks. For industry practitioners, this means that future regulatory focus is more likely to concentrate on specific issues such as information disclosure, asset ownership, and risk control. The pre-emptive and systematic nature of compliance requirements may become the norm for industry development.

4.3 Policy Outlook: From Confirmation of Property Rights to the Beginning of Detailed Rules

From an overall policy perspective, the bill reflects the UK's consistent gradual approach to crypto regulation. The legislature prioritized clarifying fundamental legal concepts, providing a unified framework for subsequent regulatory and judicial practice. This approach leaves room for future policy adjustments and implies that the relevant rules will continue to be refined as practical experience accumulates.

In the foreseeable future, the UK's regulatory focus on crypto assets will likely revolve more around tax compliance, information transparency, and cross-border collaboration. The legal confirmation of ownership at the property law level makes it easier to incorporate digital assets into the existing institutional toolbox. From this perspective, this legislation is an important step towards the normalization of digital asset regulation.

Conclusion

Overall, the Property (Digital Assets, etc.) Act 2025 has completed a fundamental institutional affirmation within the UK legal system.

The inclusion of digital assets within the scope of property rights protection signifies that they are no longer on the fringes of the legal order but have formally entered the existing regulatory framework. This change provides a more solid legal foundation for rights remedies and eliminates long-standing conceptual uncertainties in tax and regulatory practices. For the crypto industry, this marks a more systematic and comprehensive acceptance of regulatory adjustments for related activities. As the legal positioning gradually becomes clearer, compliance is no longer an option but a practical prerequisite that industry participants must face in the long term.

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