tl;dr

Disposals of bitcoin via exchanges which are banks may be exempt from UK Capital Gains Tax if made on or after 7 Sep 2021.

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Further to my original post (https://np.reddit.com/r/Bitcoin/comments/pjh4r3/as_a_currency_of_el_salvador_btc_is_now_exempt/), S.35 of the Finance Act (2012) (https://www.legislation.gov.uk/ukpga/2012/14/section/35) amended the Taxation of Chargeable Gains Act (1992) so that gains made on foreign currency held in bank accounts are not liable to UK Capital Gains Tax with effect from 6 April 2012 (I have changed the wording to make it more precise).

The legal wording is: [CGT] does not apply in relation to a gain accruing to a person [an individual or trustee (not a trader)] on a disposal of a foreign currency debt [owed by a bank in a currency other than sterling and represented by a sum standing to the credit of an account-holder in an account in that bank].

The steps are:

An individual [UK citizen] transfers BTC to an exchange that has a banking licence. This is not a taxable event as it is like for like. Also HMRC principle 'a man cannot trade with himself' [see Ayrshire Employers’ Mutual Insurance Association Ltd v CIR (1946) 27TC331].

The BTC is now a 'debt owed by a bank in a currency other than sterling and represented by a sum standing to the credit of an account-holder in an account in that bank'. (It has changed from being sovereign money to being debt-based money).

It only remains to argue that, since BTC is legal tender in El Salvador it is a foreign currency [currency other than sterling].

Since CGT only applies to gains when they are realised (not when they are made), CGT should not apply to gains on disposals made from banks on or after 7 September 2021, even if the gain was made before then. The bitcoin can be held in any bank (does not have to be El Salvadorean or UK).

HMRC says in its crypto manual (https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22550) 'HMRC does not consider cryptoassets to be currency or money. This reflects the position previously set out by the Cryptoasset Taskforce report (CATF). This means that sections 252 and 269 Taxation of Chargeable Gains Act 1992 do not apply.'

However the CATF published their opinion in October 2018 and only considered whether bitcoin was currency or money in the UK. Bitcoin was adopted as legal tender in El Salvador in September 2021.

Use this information at your own risk but don't come crying to me if HMRC shuts this loophole while you're hesitating.

See also https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg78321